Medical and Healthcare Practices

The IRS may argue that a practice owner-employee’s compensation is too low. Such a determination often arises as a result of an income tax audit. This can result in recharacterization of dividends paid to shareholders as compensation and retroactive assessment of payroll taxes plus penalties and interest.

The solution is proper structure of executive compensation supported by a consistent compensation strategy. This strategy must adapt over time to changing IRS guidelines and the decisions of recent court cases. It should also be properly documented and supported by national averages.

A majority of medical practices we consult with are overpaying their taxes due to improper entity selection. There are significant tax ramifications at the shareholder-employee level that must be understood in order to make the right entity selection from a tax standpoint.

Similarly, many medical practices don’t understand some of the obstacles involved in conversions to Subchapter S status, including built-in gains issues.

With multi-entity structures, rental losses may or may not be deductible. It takes expert guidance to know the difference and maximize the tax benefits of such arrangements.

A number of business expenses typically deducted by medical practices are disallowed if the practice is audited. These include auto expenses and reimbursements to employees for auto and travel expenses. Tools are available to help practices overcome compliance issues related to expense deductions.

Fraud is a growing problem in some medical practices. Having solid internal controls in place can help prevent or reduce incidences of fraud related to assets, billing and collections.

For example, transaction authorization, recording and custody functions should be separated among two or more employees to prevent fraud as well as errors and other damages.