Skip to main content

10 Year-End Financial Planning Tips for Physicians

November 17, 2015

As we approach the end of another year, it’s time to review your practice’s 2015 financials and prepare for the 2016 tax season. Here are a few tips to set your practice up for financial success in 2016.
1.    Review 401(k), 403(b), TSA or other retirement account contributions
Individuals can contribute up to $18,000 to their 401(k) plan and those over the age of 50 can contribute an additional $6,000 to their plan.

2.    Review your benefits package
Review your package and consider your options for 2016. Work with a trusted financial advisor to evaluate your current asset allocation and future contribution allocation within employer-sponsored retirement accounts.

3.    Accelerate expenditures, but avoid a low cash balance
If you are a cash-based practice, you may find it beneficial to maximize cash expenditures toward the end of the year to limit taxation. Some examples of cash expenditures are:
  • Staff bonuses – This is an effective way to reduce taxable cash, plus you get an additional benefit because bonuses are tax deductible.
  • Spend the balance from your Flexible Spending Accounts – This includes both healthcare and childcare. These types of accounts are generally “use it or lose it” accounts, so the end of the year is a good time to spend any remaining cash.
  • Consider adding to or opening a tax advantage 529 education plan – One benefit of gifting to a 529 plan is that you can gift five years’ worth of contributions in one year. However, this means that no additional gifts can be made for five years. Consult with a tax professional, as rules and regulations vary with these accounts.
  • Make last-minute charitable donations – Maximize your itemized deduction by donating property or appreciated stock. Contributions are deductible if you itemize deductions.
  • Consider your estate gifting strategy – You can gift up to $14,000 (per person) to as many people as you’d like without incurring any federal gift tax liability.
Some practices opt to defer pension or retirement plan contributions until the new year as a way to save cash reserves but be mindful of accruing large contributions that have to be paid out at a later date. It’s important not to leave your practice cash poor, but putting off large contributions can put the practice in a bind later on.

4.    Look for tax-deductible items
Business gifts to customers and colleagues are 100% deductible up to $25 per recipient per year. Monetary and non-monetary gifts greater than $25 are taxable to the employee and will need to be included in their W-2 forms.

Other tax-deductible items include:
  • Advertising, such as business cards, brochures and website design and maintenance
  • Rent payments for office building
  • Office supplies
  • Financial management fees
  • Credentialing and licensing fees
5.    Schedule time with your accountant and financial advisor
Make sure your team of experts has a strategy to reduce taxable gains. This includes managing capital losses in your investment portfolio. Be prepared with questions, especially regarding income projections.

6.    Project income for 2016
Assess your practice’s income and cash flows for 2015 to project and plan for 2016. Anticipated cash collections are based on several factors, including volume, fee schedules and payer mix. These factors can change from year to year, so ensure you are taking these changes into account and not just assuming they will be the same as previous years.

7.    Make sure you’ve taken the required minimum distribution from your IRA
The minimum distribution depends on the amount in your account. Note that all of your IRAs need to be considered in this calculation.

8.    Review life insurance policies
Low interest rates and poor performance, in general, has caused problems with many life insurance policies. Confirm with your financial advisor that your policy is in good standing.

9.    Review beneficiary designations within your IRAs, 401(k)s and insurance policies
Many people make the mistake of naming their estate as a beneficiary. Know that the beneficiary designations on these accounts supersede your will, so it is very important to ensure your beneficiaries are listed correctly.

10.  Take advantage of down time
You may find yourself with some down time around the holidays. Use the extra time for administrative housekeeping. Update your practice policies and procedures, finalize 2016 business plans and address new employee health insurance policies that take effect January 1.
Even if you operate on a fiscal year, the end of the calendar year marks the halfway point, which is a good opportunity to review your budget and business plans for the remainder of the fiscal year. As always, consult with a tax or finance professional before making any major changes to your wealth management strategies.