Aloha, everyone! As you’re reading this my wife/vice-president and I are clearing the mental decks before the big tax season push on the horizon with a week’s stay on the island of Maui in our 50th State, Hawaii.
The one state in the Union that it is absolutely senseless to observe daylight savings time. That’s because the weather is almost always the same, but more importantly it’s half of the way closer to the equator than our home.
I live at about the 39-degree parallel in the Pikes Peak Region. Hawaii, depending on which island, is at about the 20th. That puts it below the Tropic of Cancer, making it, as they say, a tropical paradise.
And since the daylight period has very little shift between winter and summer, well, daylight savings becomes a little ridiculous.
Honestly, I think it’s a terrible idea for the rest of the country too. I’m not the only one that feels that way, but…
…this is a discussion for another time.
Anyway, as promised last week I want to explore the journey of ordinary and necessary this week.
Expenses, that is.
Ordinary and Necessary
This is not my turn of phrase, but I don’t mind repeating it, and using it often.
The reason is that it is the best filter possible with which to view any cost you are about to have in your business.
It comes from IRS Publication 535, cleverly titled Business Expenses, and the phrase “ordinary and necessary” appears 10 times in the 2022 revision.
If you can look an auditor or other Internal Revenue employee in the eye and justify an expense as both ordinary in your business, and necessary for it, you’re golden.
For my physician entrepreneurs many of your expenses are going to be clearly obvious. But perhaps not everything!
I’m going to borrow from my own writing, as well as repeat information I shared with you 2 weeks ago on January 28th, except that this week I’m going to discuss a few of them a little more deeply…
- Advertising
- This includes marketing, and for clarity in my books and those of our clients, I consider social media and website expenses as a sub-category. Any decent accounting system will allow you to create a child account to track these sub-species of your advertising dollars separately.
- Auto and Travel
- I had used the qualification “if you go out on calls” alongside this category, but don’t forget out-of-town conventions and seminars, teaching engagements, privileges at outside facilities as well as any travel ordinary and necessary for a medical professional.
- Insurance – Liability and Malpractice
- Also…if you happen to use a vehicle more than 50% for business (not counting office commuting from home) don’t forget about auto insurance as well
- Legal and other professional fees
- This includes accounting and/or bookkeeping, as well as tax planning.
- Software as a Service (Saas)
- An absolute must for both billing as well as diagnostic and treatment facilitation.
- Payroll and Management
- This component includes a substantial expense in employer taxes such as FICA and UI. Also, the average physician practice employs or pays 17 people. To remain competitive you may want to explore the wonderful world of HSA contributions and 401ks.
- Staffing and Recruitment
- Because…turnover is a reality, despite your best efforts. People get married, or relocate for a spouse’s career even if they love what they do.
- Supplies – Offfice
- Supplies – Consumable Medical
- Taxes & Licenses
- All states have some form of business renewal, franchise tax, or periodic annual reporting.
- Utilities
- Depreciation expense (or depletion)
- This is where you can potentially save a fortune in taxes. Even now, with the declining bonus depreciation percentages.
- Other – There are potentially dozens of legitimate expenses that don’t fit above.
- Bank charges and fees
- Client appreciation expenses
- Dues & subscriptions
- Postage & shipping
- Telephone (wired and wireless)
- Waste and biohazard disposal
In Conclusion
Physician entrepreneurs, if you would like to discuss how having a non-equity financial partner guiding your practice’s business future can increase your wealth, reduce your taxes, and provide the peace of mind that will allow you to put 110% of yourself into your patient care goals?
We would like to talk to you as well.
We are still accepting up to two new business advisory clients in the month of February.
Use the link I’m providing below now to choose a time to talk most convenient for you.
You will also receive your own copy of 5 Mistakes Physicians Make That Hurt Cash Flow, just for booking a call.
Imagine having a financial coach and compliance expert by your side, so that you can focus your professional clinical time where it belongs: on patient care.
Does that sound good?
Then reach out to me, and let’s talk: Free Profit & Cash Flow Analysis