Tax experts stress the economy this year

Pay attention to practice management, they say

February 3, 2009 (published)
By Timothy Kirn

With a new president in the White House, nobody is quite sure what veterinarians can expect with regard to their taxes, except that they could go up in the long term. And the economy is down, which undoubtedly will have a negative effect on some DVMs.

Though the future is uncertain, business experts are giving general advice.

Now is a good time for veterinarians to expend the effort to improve their practice management, and let the taxes be what they may, advises Jon Dittrich, a veterinary practice consultant based in Knoxville, Tenn.

In the short and the long run, the practice that reduces overhead, improves its reputation and visibility and increases its efficiency is going to be ahead, especially given the uncertainty in the economy and the government, Dittrich says.

Improving income and profitability produces benefits that continue into the future. But working to reduce one’s taxes is a one-time return, Dittrich adds.

“From a personal standpoint, my goal every year is to pay more taxes, because that means I made more money,” he says.

Deferring or postponing receipt-of-income in a particular year or quarter, to keep taxes lower, is often a good idea. But with state and, perhaps, federal taxes likely to increase, it is not a good strategy now, says David MIttenthal, a certified public accountant who works in South Florida.

“It may be better to pay the taxes this year, before they go up,” Mittenthal says.

One of this year's lone bright spots for veterinarians is the federal tax code’s Section 179 Deduction, says Gary Glassman, a certified public accountant based in East Haven, Conn. Previously, Section 179 only allowed small businesses to deduct $125,000 for financed or leased equipment purchased or leased in that tax year. However, the Economic Stimulus Act of 2008 increased the amount that can be deducted to $250,000.

Until recently, it was expected that President Barack Obama would push to raise the tax income rate for those earning more than $250,000 a year, an increase that would have affected many practice owners. But Glassman says most experts now predict that federal tax rates will not rise until 2010, across all income brackets. That's because nowadays, stimulating the economy has become a first priority for politicians.

The same cannot be said for state tax rates, however, Glassman notes. Many states have serious budget troubles, and they do not have the same interest in spurring economic growth, he says.

Given that taxes are unlikely to go up in the near term, Glassman, like Dittrich, predicts the economy will have a bigger detrimental effect on income. He recommends that veterinarians look to improve the efficiency of their practices to optimize earnings. Specifically, he says practices need to be aggressive about sending client reminders for vaccinations and routine exams and advises owners to review their collection policies and, perhaps, consider developing alternative payment methods when necessary.

Economists, he adds, have noted that the current recession initially was driven by home foreclosures and now is being exacerbated by employee layoffs. That's a recipe for a long recession, Glassman says.

“We definitely think there is going to be some downturn in income for many veterinarians, if not now, in the near term,” he warns.

VIN recently hosted a Rounds for members discussing President Obama's tax proposals made during his campaign for office.

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