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MONTHLY TAX NEWSLETTERJuly 2009GOVERNMENT REWARDS NEW HOMEOWNERS WITH $8,000 BOUNTY THROUGH NOVEMBER 30TH The housing market stinks. And the decreased home values continue to wreak havoc on the credit markets.
In an attempt to buoy the housing market while still in office, President Bush introduced a $7,500 first-time homebuyer credit as part of the Housing Assistance Tax Act of 2008. This tax credit was to apply to homes purchased between 4/9/08 and 6/30/09, and was equal to the lesser of 10% of the home's purchase price or $7,500.
The 2008 version of this tax break contained a unique feature, however. Anyone receiving this tax credit would need to repay the amount of the credit over fifteen years, making it more like an interest-free loan from the government than a true tax credit. So if you got the full $7,500 first-time homebuyer credit, you would report and pay an extra $500 annually as part of your tax return until you repaid the government in full.
Extended and Improved
President Obama extended and improved the first-time homebuyer credit as part of the American Recovery and Reinvestment Act of 2009. Here are some of the 2009 changes to this tax break:
Who Qualifies?
According to the IRS in their informative First-Time Homebuyer Questions and Answers, "Taxpayers who have not owned another principal residence at any time during the three years prior to the date of purchase" qualify for this tax credit. If you're married, neither you nor your spouse could have been homeowners during that three-year window.
Like pretty much every tax break introduced since 1986, this tax break includes an income limitation excluding high-income and middle-income taxpayers from claiming this credit. Both versions of this tax break have identical phase-out provisions - single individuals with Adjusted Gross Income (AGI) of $75K - $95K and married couples with AGI of $150K - $170K. Earn more than $95k if single or $170k if married, and you're out of luck.
Unmarried Homeowners
How does this tax credit work when two unmarried individuals purchase a home together? If the income for one of the buyer's exceeds the phase-out limit, the answer is simple. The other buyer whose income falls below the phase-out limitations claims the full tax credit.
Otherwise, the first-time homebuyer credit may be allocated between the taxpayers using any reasonable method. Check out the IRS' report on the Allocation of First-Time Homebuyer Credit Between Taxpayers Who Are Not Married for examples of how they recommend new homebuyers split this tax break.
Claiming the Credit
Claiming the First-Time Homebuyer tax credit is pretty simple. Just complete and attach a Form 5405 to either your federal income tax return (Form 1040) or an amended tax return (Form 1040X). If you purchased your home between 4/9/08 and 12/31/08, your only option is to claim this credit as part of your 2008 tax filings.
Anyone who purchases a home between 1/1/09 and 11/30/09 has a decision to make. Either amend your 2008 tax return and claim the credit as part of your 2008 tax filings or claim the tax credit in connection with your 2009 Form 1040.
One key factor is whether your AGI falls below the threshold of $75k for single individuals or $150k for married couples in 2008 and/or 2009. If your income fell below the applicable threshold in 2008, go ahead and amend your 2008 tax return to get back this $8,000 tax credit as soon as possible. (Don't forget to check the box on the Form 5405 to notify the IRS that your home was purchased during 2009 to avoid being asked to repay the tax credit.)
Otherwise, you might be better off waiting to claim the credit as part of your 2009 tax return. Keep in mind that there are still steps you can take to minimize your 2009 AGI. For starters, max out your 401k and 403b contributions at work to reduce your taxable wages. Bypassing the Roth version of these plans might also make sense, since contributing to the Roth does not reduce your current year's AGI.
If you're self-employed, holding off invoicing your customers until next year and paying whatever bills you can prior to the end of the year will help reduce the income you'll report from your business. This year is also a good year to purchase equipment, computers, and office furniture, since you can write off the first $250,000 of business equipment purchased during 2009. Maxing out your self-employed retirement plan - either a SEP, SIMPLE or Solo 401k - will also help reduce your AGI.
Clock is Ticking
Remember, qualified first-time homebuyers only have until November 30th to finalize the purchase of a home and receive up to $8,000 from the government. Since it takes a few months or more to locate a home, obtain financing, and close on the property, now's the time to check out the open houses in the neighborhoods where you want to live. It probably also makes sense to get pre-approved for a mortgage in order to save time once you find your dream home. VICTIMS OF IDENTITY THEFT SHOULD ALSO PLACE FRAUD ALERT WITH IRS As if you don't have enough to worry about these days, identity theft continues to be a growing problem to many individuals. If you are a potential victim of identity theft, step one is always to place a Fraud Alert with the three credit bureaus at the website sponsored by the three credit agencies - Equifax, TransUnion, Experian, www.annualcreditreport.com. What you may not realize is that potential identity theft victims should also place a Fraud Alert with the IRS. According to our friends at the IRS: An identity thief might also use your Social Security number to file a tax return in order to receive a refund. If the thief files the tax return before you do, the IRS will believe you already filed and received your refund if eligible. If your Social Security Number is stolen, it may be used by another individual to get a job. That person’s employer would report income earned to the IRS using your Social Security number, making it appear that you did not report all of your income on your tax return. What do I do if I have not been contacted by IRS for a tax issue but believe I am a victim of identity theft? If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost/stolen purse or wallet, questionable credit card activity, credit report, or other activity, you need to provide the IRS with proof of your identity. You should submit a copy, not the original documents, of your valid Federal or State issued identification, such as a social security card, driver's license, or passport, etc, along with a copy of a police report and/or a completed IRS Identity Theft Affidavit - Form 14039 [yes, the IRS even has a form for Identity Theft]. Please send these documents using one of the following options: Mailing address: FAX:
Note that this is not a toll-free FAX number You may also contact the IRS Identity Protection Specialized Unit, toll-free 1-800-908-4490 for guidance. (Editor's note: My CPA firm prepares about two thousand individual tax returns each year, and this exact scenario impacted one of our clients this past winter who had a fraudulent tax return filed by someone else under their social security number.) HOW A "PRACTICE ASSESSMENT" CAN IMPROVE YOUR PRACTICE by Carolyn Pickles, MBA, FACMPE Practice assessment offers healthcare professionals insight into ways to enhance their practice by, for instance, improving service, increasing efficiency, and enhancing the revenue cycle, all particularly important goals in today’s challenging economic times. The focus of a practice assessment can be broader (such as ‘are we processing patients in the most efficient manner’, ‘how are we doing in terms of patient service’, and ‘is there room for improvement in our revenue cycle’), or it can be more specific and based on concerns about certain aspects of the practice as identified by doctors and management (such as ‘I think my income is lower than that of my peers’, ‘I’m wondering if we are overstaffed in our clinical area’, and ‘we seem to be getting more patient complaints than we used to’). Common areas to assess in a practice include: ü Operational efficiency – Is the day to day functionality of the practice being maximized? ü Patient service – Does service meet patient expectations? ü Revenue cycle management – Are processes in place to maximize revenue collection? ü Revenue – Is the practice maximizing its revenue through appointment scheduling practices, coding, and use of ancillaries? ü Compensation – Is staff and doctor compensation in line with industry standards? ü Overhead – Is the practice overhead rate comparable to industry standards? ü Staffing issues – Are staff members performing according to expectation and are staffing levels comparable to industry standards? ü Financial systems – Are cash, accounts payable, and payroll controls appropriate? ü …and more. Let’s review some examples of how assessments are completed. To evaluate the operational efficiency of a practice, patient processing might be examined from the point of the first new patient telephone call, through the registration process, initial visit, check out, and billing processes. Patient service is easily assessed as part of this process by observing professionalism and service attitude, both in person and during telephone conversations. Review of the registration process, billing processes, insurance follow up routines, and analysis of 30, 60, 90, and 120+ accounts receivable aging categories provides insight into a practice’s revenue cycle and accounts receivable management. In reviewing financial systems one might examine physical processing of payments, payables, and payroll as well as related control systems. Staff compensation is commonly analyzed by benchmarking hourly rates and salaries against industry data for similar positions. The healthcare professional’s compensation can be analyzed this way as well. A practice assessment should always incorporate a customized report of findings and recommendations for improvement. A face to face meeting is also desirable, as it allows for discussion of the report as well as fine tuning of recommendations. Some doctors and office managers prefer to work through the task of implementing recommendations on their own whereas others prefer to engage the consultant to assist them. Either way works however, if the practice manager does not have the skill set required to make the necessary changes, serious consideration should be given to engaging the consultant to help during the implementation phase. A practice may want to consider a limited follow up assessment six to eighteen months later, based on the type and extent of the changes. The benefits of a practice assessment include the potential to: ü improve patient service; ü enhance operational efficiency and effectiveness; ü improve billing, collection, payroll, and accounts payable processes; ü reduce the likelihood of theft; ü identify new sources of revenue; ü enhance staff management; ü determine which protocols and routines are effective and efficient - as well as those that are not; ü benchmark various types of practice data against industry standards; ü learn about problem-specific alternatives, solutions, and resources. Who can complete a practice assessment? An experienced practice manger is capable of performing an assessment. However, there are benefits to engaging the services of a consultant with experience in practice management. He/she brings a fresh outlook and offers an outsider's independent perspective about the strengths of the practice and the opportunities for improvement. How much time is required to complete an assessment? The time required to complete an assessment is dependent upon the number and depth of areas reviewed. A typical assessment involves one to two days to gather information, plus time to complete any related research and actually write the report. How is information gathered? Information is usually gathered via observation, question and answer, interviews, informal discussions, and data analysis. What does a practice assessment typically cost? While the investment in this type of practice analysis can cost a few to several thousand dollars, these monies can potentially be recouped via the financial aspects of the project, for instance, by identifying ways to improve revenue cycle management, increase revenue, decrease overhead, and increase operational efficiency. In summary, the focus of a practice assessment can be general or more customized. It is a valuable and cost effective tool to maximize the effectiveness, efficiency, and fiscal management of a medical practice and it offers insight into ways to improve the practice, for the benefit of patients, physicians, management, and staff. Carolyn Pickles, MBA, FACMPE is a practice management consultant who works with physicians, their managers, and their staffs to improve functionality in operations, finance, human resources, information management, governance, patient care systems, quality management, and risk management. She can be reached at (413) 530-3823. |
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