Year-end Tax Planning for Physicians Complicated in 2020
Impact of COVID-19-related Aid and the Presidential Election
Year-end tax planning and compliance planning for healthcare practices will be complicated by two major unusual circumstances in 2020 – the COVID-19 crisis and the presidential election. For many practices, preparation for tax season also means preparation for reporting on relief funds they received under the Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted in March.
Under the CARES Act, many physicians and healthcare practices received relief grants from the U.S. Department of Health and Human Services (HHS), as well as the Paycheck Protection Program (PPP) loans and Economic Injury Disaster Loans (EIDL) that other types of businesses received.
Targeted Medicare funds
The HHS funds came from a targeted distribution of payments totaling $175 billion nationwide. Recipients of the HHS funds will need to report to the agency by February 15, 2021, detailing how the funds were used in 2020. An online portal for submitting those reports will open on January 15, 2021. If any of the funds were unused in this calendar year, another reporting deadline is set for July 2021 on use of the funds in the first half of next year.
The HHS grants are a form of relief that is specific to the healthcare industry and were distributed in the first round only to physicians and healthcare practices that accept Medicare. The grants were designed to compensate for lost revenue and expenses caused by the coronavirus. The initial deposits were automatically received while the second round had to be applied for, attested to, and were calculated to fulfill about 2% of each practice’s 2018 revenues. These funds could be used to purchase personal protective equipment (PPE) or cover other expenses not covered by PPP and EIDL funds.
So far, HHS has made two rounds of funding to physicians and healthcare practices, and recently opened a third round to address lost revenue margins between 2019 and 2020 and expanded operating expenses caused by the coronavirus. The latter two rounds were expanded to include Medicaid billers, dentists, and mental health care providers.
The HHS reporting requirements will include detailed accounting of how and where the funds were spent, as well as any funds that are yet unspent. Healthcare practices that have maintained good monthly recordkeeping and financial reporting practices should be in good shape to meet the HHS reporting requirements.
Year-end tax planning in 2020 is further complicated by the presidential election.
Both major party candidates have articulated very different tax proposals. Regardless of the outcome of the presidential election, taxpayers must understand their projected income both this year and next. Whether income tax rates are increased or decreased because of national policy decisions, certain decisions should be made with an eye toward tax consequences.
For instance, should you buy equipment and additional supplies this year and apply a deduction against 2020 income, or push the purchases into next year? Collections of receivables with insurance companies and patients while reviewing for potential year-end employee bonuses are another common tax planning tool that need evaluated in depth this year. Timing for your PPP loan forgiveness application and SBA approval is an important balance between the 2020 and 2021 tax years, some of which is out of the hands of the physicians and healthcare practices.
As an individual, physicians should be evaluating all retirement contributions and HSA contributions to maximize their benefits.
The tax consequences of these questions depend in large part on the outcome of the presidential election. Given the dramatic increase in mail-in voting nationwide, the results of the election may not be known until late November, leaving even less time than normal for year-end tax planning.
Don’t delay. Contact your Adams Brown advisor now to begin the year-end tax planning and compliance reporting process.