End-of-Year Tax Tips: Do What You Can Before It's Too Late

Dennis G. Murray, MA

Disclosures

November 15, 2017

In This Article

Time Is Running Out

6. Figure Out Whether You Should Upgrade Your Practice

Are you and your staff working with outdated tools, including certain diagnostic and computer equipment? If so, it might be time for some upgrades. The good news is that although you may have to spend a good chunk of money to modernize your office, you can earn a tax deduction of up to $510,000 this year. The limit shrinks by the amount by which the cost of the property exceeds $2 million per calendar year—an amount very few solo or small practices are likely to top, however.

Most items—and we emphasize most—will earn you a deduction. For instance, such things as new heating and air-conditioning systems, fencing, and parking lot upgrades don't qualify. But medical equipment, office furniture and supplies, computers, and off-the-shelf software do qualify. Physicians can write off the full amount of their purchase provided that the goods are bought and placed in service before the end of the year. In short, it's not enough to order stuff between sips of champagne on New Year's Eve. Everything needs to be up and running before the clock strikes midnight.

You can even get the full deduction on items that are leased or financed, which allows you to maximize your cash flow while still taking advantage of a generous tax break. (Get this: At least initially, your tax savings will probably be greater than your cash outlays!) And the items don't even have to be new, the Internal Revenue Service (IRS) says; used items qualify for the deduction, too—again, with the caveat that they be in service before the new year. So, if you're tired of hearing patients complain about the furniture in your waiting room, or you need new billing software for your back-office staff, now's the time to open your wallet.

7. Look at What Besides Money You Can Donate to Charity

To further reduce your taxable income for 2017, see whether you can donate more to your favorite charitable organizations. You don't have to come up with cash, however. Most major charities allow you to donate by credit card. As such, although the bill may not come due until next year, you can write off the full amount of the donation on this year's return.

Charitable contributions. Also, plenty of charities are willing to take lightly used household items, including clothing, furniture, and electronics. If you claim more than $500 for the fair market value of your donated property, the IRS requires you or your tax preparer to fill out Form 8283, "Noncash Charitable Contributions." Make sure, too, that you hang onto your bank records and written acknowledgements for any monetary contributions. Single donations of $250 or more require a written confirmation from the charity before you can claim a tax deduction.

Another way to take advantage of charitable contributions is to donate shares of stocks or mutual funds that have appreciated. Maybe you've held shares of, say, Ford or IBM for many years. The tax laws allow you to write off the value of donated shares at the time you transfer them, rather than the price when you purchased or received them. Not only do you get a tax break on your 2017 return, but also you're not required to pay capital gains tax on the amount by which the shares have increased in value.

Very rarely will any of these activities raise audit flags, especially if you're donating to the American Cancer Society, Doctors Without Borders, or any other established charity. In the eyes of the IRS, however, not all organizations are eligible to receive tax-deductible charitable contributions, which could cancel out any tax savings from your gift-giving. For a current list of qualified charitable organizations, see the IRS' "Select Check".

Older doctors who must take required minimum distributions from their individual retirement account (IRA), but don't need all of the money, can adopt a similar strategy by gifting up to $100,000 of their annual required minimum distributions directly to charity. "This lowers the physician's taxable income (also known as the AGI)," Dr Greenwald says, "and is a more effective strategy than taking the IRA distribution and then gifting the proceeds. This is particularly beneficial because it avoids any of the tax consequences that would otherwise apply to the higher AGI, such as losing deductions or paying more for Medicare."

Don't Wait Too Long!

Remember, all of these tax moves need to be completed before December 31, and some may take more time than others to tie a bow around. It's important, too, to consider whether any of these strategies may trigger the dreaded alternative minimum tax (AMT), which was originally designed to ensure that the wealthy paid their fair share of taxes but has been ensnaring many folks in the middle class as well. (There's been talk in Washington of abolishing the AMT, but it was still with us when this article went to press.)

Without getting into too much detail, certain expenses that are normally deductible on your tax return, such as property taxes and state and local income taxes, may be excluded if you're subject to the AMT. So, before you get too zealous about bulking up on certain deductions, talk to your tax preparer. "Making some of the payments early might save state income tax even if there's no federal tax savings," Baldassari says.

Although taxes are something that we never seem to have enough time (or motivation) for, taking stock of where you're at now can save you thousands of dollars and avoid significant hassles next spring. What better way to ring in the New Year?

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