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Archives for October 2018

Best States for Veterinarians

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While there are many ways to determine where veterinarians have it best, here’s two different top ten lists.  The first ranking comes from Veterinarian’s Money Digest and second comes from Zippia.

Best States                                             Vet Money Digest

For Veterinarians                                Top Ten States                  Top Ten States (Zippia)

1                                                              Oklahoma                           Idaho

2                                                              Wyoming                            Pennsylvania

3                                                              Texas                                   Virginia

4                                                              Pennsylvania                     Rhode Island

5                                                              Michigan                            North Carolina

6                                                              Virginia                               South Dakota

7                                                              North Carolina                  New Mexico

8                                                              Indiana                               South Carolina

9                                                              New Jersey                        Indiana

10                                                           Idaho                                    Maine

 

And while there are many ways to analyze this, there are some patterns between the two lists.  These are Pennsylvania, Idaho, North Carolina, Indiana, and Virginia.

Tax Coaching for Veterinarians

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To better service the pet hospitals and veterinarian clinics, the Veterinarian CPA Association has embarked upon an aggressive education based program designed to lower the effective tax rates for veterinarians.  Simply said, all Veterinarian CPA Association members provide tax coaching and tax planning to minimize your tax responsibilities legally.

The  Veterinarian CPA Association tax coaching is most effective for:

  • Veterinarians making over $200,000 annually
  • Vet medicine practices with annual sales less than $4 million
  • Veterinarians willing to spend money to lower their effective tax rates

The Veterinarian CPA Association consists of independently owned CPA Firms that focus on pet hospitals and veterinarian practices.  We have no interest servicing the corporate side of the industry.

If you are tired of overpaying your taxes and would like to become proactive, then contact a Veterinarian CPA Association member in your region.

Hiring a Veterinarian CPA Firm vs Generalist CPA

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Similar to veterinarians, Certified Public Accountants (CPAs) are licensed and regulated by the state.  They also have disciplinary review boards and continuing education requirements.

Typically, CPA Firms operate as generalists and work with everything from individuals to small businesses to non-profits to corporations.  And while being a generalist makes them well rounded, it can also be limiting if you want additional expertise like veterinarian benchmarking or fraud protection procedures.

Within the typical CPA practice, the Generalist CPA Firm will service lots of small businesses that use QuickBooks because it is the predominant accounting software program for small businesses in the United States.  However, they seldom have a concentration of businesses within any one industry so the industry specific insight is limited.  For example, a Generalist CPA firm will typically have a couple medical clients and maybe one veterinarian practice.  As a result, providing veterinarian practice coaching is not something they can reasonably provide because veterinarians comprise a very low percentage (less than 2%) of their overall mix.

Conversely, a CPA Firm that concentrates on the animal health industry can not only review QuickBooks, provide tax reduction planning, and provide best practices benchmarking for a veterinarian practice your same size, but should also provide insight into the best providers for:

  • Veterinarian Law Firms
  • Veterinarian Banking
  • Veterinarian Real Estate
  • Veterinarian Practice Brokerage
  • Veterinarian Fraud Control

If you are searching for a higher level of expertise at key points in your career, it really pays attractive dividends to align yourself with a CPA Firm that is focused on the animal health industry.  Below are some of the most important inflection points for hiring a Veterinarian CPA:

  • Incubator Stage – While attending vet medical school, it really pays to create the right professional relationships to overcome obstacles to veterinarian practice ownership.
  • Growth Stage (first five years of ownership) – Decisions ranging from office location to practice type to office staff can have profound impact on production, cash flow, client acquisition, and debt reduction.
  • Adolescent Stage – Decisions focused on technology upgrades, remodeling, office design, improved work flows, and improving clientele quality.
  • Maintenance Stage – Most of this phase focuses on saving for retirement.
  • Exit Stage – Most of this phase is focused on maximizing the value of the practice for sale.

The Veterinarian CPA Association is a proactive group of Veterinarian CPA Firms that attend veterinarian trade shows, participate in VetPartners, dedicate time to veterinarian industry education, provide vet practice benchmarking, actively put you into the best possible tax position, and can recommend the best veterinarian providers throughout the key stages in your career.  If you would prefer to avoid some bumps in the road and would like a higher level of expertise, then hire a CPA Firm that concentrates on the animal health industry and has gotten better with time by coaching veterinarians successfully through the vital stages of life.

Cash Balance Plans for Veterinarians – Tax Hedge

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Cash balance plans, also known as cash balance pension plans, are getting renewed interest from accomplished veterinarians.  Essentially, they are a way to reduce tax liability and increase retirement savings for successful veterinarians, dentists, doctors, law partners and wealthy business owners.

What is a cash balance plan?

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There are two general types of pension plans — defined benefit plans and defined contribution plans. In general, defined benefit plans provide a specific benefit at retirement for each eligible employee, while defined contribution plans specify the amount of contributions to be made by the employer toward an employee’s retirement account. In a defined contribution plan, the actual amount of retirement benefits provided to an employee depends on the amount of the contributions as well as the gains or losses of the account.

A cash balance plan is a defined benefit plan that defines the benefit in terms that are more characteristic of a defined contribution plan. In other words, a cash balance plan defines the promised benefit in terms of a stated account balance.

How do cash balance plans work?

In a typical cash balance plan, a participant’s account is credited each year with a “pay credit” (such as 5 percent of compensation from his or her employer) and an “interest credit” (either a fixed rate or a variable rate that is linked to an index such as the one-year treasury bill rate). Increases and decreases in the value of the plan’s investments do not directly affect the benefit amounts promised to participants. Thus, the investment risks are borne solely by the employer.

When a participant becomes entitled to receive benefits under a cash balance plan, the benefits that are received are defined in terms of an account balance. For example, assume that a participant has an account balance of $100,000 when he or she reaches age 65. If the participant decides to retire at that time, he or she would have the right to an annuity based on that account balance. Such an annuity might be approximately $8500 per year for life. In many cash balance plans, however, the participant could instead choose (with consent from his or her spouse) to take a lump sum benefit equal to the $100,000 account balance.

If a participant receives a lump sum distribution, that distribution generally can be rolled over into an IRA or to another employer’s plan if that plan accepts rollovers.

The benefits in most cash balance plans, as in most traditional defined benefit plans, are protected, within certain limitations, by federal insurance provided through the Pension Benefit Guaranty Corporation.

How do Cash Balance Plans differ from traditional pension plans?

While both traditional defined benefit plans and cash balance plans are required to offer payment of an employee’s benefit in the form of a series of payments for life, traditional defined benefit plans define an employee’s benefit as a series of monthly payments for life to begin at retirement, but cash balance plans define the benefit in terms of a stated account balance. These accounts are often referred to as “hypothetical accounts” because they do not reflect actual contributions to an account or actual gains and losses.

How do Cash Balance Plans differ from 401(k) plans?

Cash balance plans are defined benefit plans. In contrast, 401(k) plans are a type of defined contribution plan. There are four major differences between typical cash balance plans and 401(k) plans:

  1. Participation – Participation in typical cash balance plans generally does not depend on the workers contributing part of their compensation to the plan; however, participation in a 401(k) plan does depend, in whole or in part, on an employee choosing to make a contribution to the plan.
  2. Investment Risks – The investments of cash balance plans are managed by the employer or an investment manager appointed by the employer. The employer bears the risks of the investments. Increases and decreases in the value of the plan’s investments do not directly affect the benefit amounts promised to participants. By contrast, 401(k) plans often permit participants to direct their own investments within certain categories. Under 401(k) plans, participants bear the risks and rewards of investment choices.
  3. Life Annuities – Unlike 401(k) plans, cash balance plans are required to offer employees the ability to receive their benefits in the form of lifetime annuities.
  4. Federal Guarantee – Since they are defined benefit plans, the benefits promised by cash balance plans are usually insured by a federal agency, the Pension Benefit Guaranty Corporation (PBGC). If a defined benefit plan is terminated with insufficient funds to pay all promised benefits, the PBGC has authority to assume trusteeship of the plan and to begin to pay pension benefits up to the limits set by law. Defined contribution plans, including 401(k) plans, are not insured by the PBGC.

Is there a federal pension law that governs these plans?

Yes. Federal law, including the Employee Retirement Income Security Act (ERISA), the Age Discrimination in Employment Act (ADEA), and the Internal Revenue Code (IRC), provides certain protections for the employee benefits of participants in private sector pension plans.

If your employer offers a pension plan, the law sets standards for fiduciary responsibility, participation, vesting (the minimum time a participant must generally be employed by the employer to earn a legal right to benefits), benefit accrual and funding. The law also requires plans to give basic information to workers and retirees. The IRC establishes additional tax qualification requirements, including rules aimed at ensuring that proportionate benefits are provided to a sufficiently broad-based employee population.

The Department of Labor, the Equal Employment Opportunity Commission (EEOC), and the IRS/Department of the Treasury have responsibilities in overseeing and enforcing the provisions of the law. Generally, the Department of Labor focuses on the fiduciary responsibilities, employee rights, and reporting and disclosure requirements under the law, while the EEOC concentrates on the portions of the law relating to age discriminatory employment practices. The IRS/Department of the Treasury generally focuses on the standards set by the law for plans to qualify for tax preferences.

Who to Contact

If you are interested in learning more about how to lower your effective tax rate, cash balance plans are one tool in the war chest.  To learn more, simply contact a Veterinarian CPA member in your region.

 

Tax Savings for Veterinarian Clinics and Pet Hospitals

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Under the IRS tax laws, cost segregation is a method for depreciating real property faster, thus creating tax savings for the property owner.  In other words, a cost segregation study will identify aspects of a property that can be depreciated over a shorter period of time (5, 7 and 15 years) than the building itself (typically 39 years).  Bigger picture, cost segregation is a vehicle to reduce your tax liability and increase cash flow.

A cost segregation study is most efficient for new buildings recently constructed, but it can also uncover retroactive tax deductions for older buildings.  About the only downside to cost segregation is the cost required to perform cost segregation study by a trained cost segregation engineer.  Yes, it will cost you money to save more in taxes.

To learn about the latest changes in cost segregation, the Veterinarian CPA Association recently held a webinar.  Veterinarian CPA Assoc works the largest provider of cost segregation studies and has many ASCSP professionals throughout the United States.

With the most recent Tax Cuts and Jobs Act, there are many changes in play with cost segregation, misconceptions, and areas that still need refinement.

Overall, cost segregation remains as an effective and viable method for lowering your effective tax rate for 2018 and beyond.  Yes, even dentists with relatively small office buildings can take advantage of these tax savings.