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KRD Newsletter - SPRING 2000 (back to Newsletter Home Page)
Client Profile:
Genesis Medical Imaging, Inc.
When Robert Dakessian and Ron Ragan found
out that the independent service company they both worked for was being
acquired by a multibillion dollar corporation, they saw it as an opportunity
to achieve a personal goal. Like many workers, Robert and Ron wanted to own
their own business. During a two‑hour business driving trip through the state
of Michigan, they had an opportunity to share their visions for the future.
Amazingly, the two men discovered they had the same Vision. For them "A bump
in the road looked more like an opportunity than an obstacle."
"We had talked about going into business
together for several months," recalls Robert, who was a Regional Manager at
the time. "When it was announced that our company was being bought out, we
figured the time had come to leave and go out on our own," he says. "I gave
notice and Ron, who was an Area Engineer Coordinator, resigned a week or two
later."
The decision Robert and Ron made resulted in
the creation in September 1998 of Genesis Medical Imaging, Inc., an
independent company that buys, sells, services and leases MRIs and Cat
Scanners. Now, 18 months later, the co‑owners look back on their decision and
smile. They have no regrets. "The only regret we have," says Ron, "is that we
didn't do it sooner."
And while Robert and Ron had years of
experience working in electronic engineering, they admit they had "absolutely
no clue about accounting." Says Robert: "There were things like payroll
reporting, social security, and federal and state taxes that we had to learn,
and learn quickly!"
Making a Statement
"The person who recommended David Diamond to us said he was probably one of the
best accountants we could possibly find‑we had no choice but to check him out,"
says Robert. "We met with David and decided to use his services. David and the
firm now handle all our accounting and tax work including tax planning and
financial statements. Once a month, David's assistant Christine Wells comes to
our office to reconcile the books. What we like about David and Chris is that
they return calls very quickly when we have questions. It's like having our own
CFO on staff."
Ron agrees. "David helps us stay on top of
things. So far, we've used our personal money to finance the business. However,
David suggested we apply for a line of credit, which would give us the
flexibility to buy more expensive equipment in the future. We were approved, and
now have access to a bank line of credit, if we need it. Dave's an excellent
accountant; he does a nice job for us."
Service, Sales and Leasing
Today, Genesis Medical Imaging, Inc. focuses in three areas: Service, Sales and
Leasing. A continually growing customer base includes Imaging Centers,
Hospitals, Medical Facilities and interestingly, Veterinarians.
- On the service side, Genesis provides
routine maintenance and emergency service for state‑of‑the‑art MRIs and Cat
Scanners. The company works with a number of independent engineers who are
outsourced as needed. Ron usually responds to complex service calls where his
expertise is needed.
Meanwhile, the advanced technology of MRIs
and Cat Scanners means more features and parts to repair or replace According
to Robert, problems can range from minor things like a fuse blowing out in a
display monitor to high or low voltage, which is more serious.
- Sales. One third of the business is in the
nationwide purchase and sales of pre‑owned Cat Scanners and MRls. "Technology
is changing so quickly that larger facilities are upgrading as soon as new
models come on the market," explains Robert. "We buy the used equipment,
refurbish it and sell it to smaller hospitals that can't afford to upgrade as
often."
- Leasing. Another third of the business is in
the leasing and rental of mobile Cat Scanners and MRIs to facilities on a
short‑ or long‑term basis.
Mobile units are actually trailers outfitted
with Cat Scanners or MRIs. Genesis owns a fleet of outfitted trailers and does
its own equipment installation.
"Hospitals or medical facilities that do not
have the upfront capital to buy a $1 million piece of equipment, for example,
may rent until they have the patient load to justify purchasing outright,"
explains Robert.
Another reason for a hospital to lease a mobile
Cat Scanner or MRI is when they buy new equipment. "It takes time to pull out an
old MRI and deliver and install a new one," says Ron. "In the interim a hospital
has to continue scanning patients, so they usually rent or lease."
As for the future, medical technology continues
to advance to meet the needs of patients. And, Genesis Medical Imaging will be
around for many years providing high quality sales, service and support. After
all it's their vision.
TAX AND BUSINESS NEWS FROM KRD
Senior Citizens' Freedom to Work Act 2000
As of January 2000, the Social
Security Retirement Earnings Test has been eliminated for individuals age
65‑69. It remains in effect, however, for those ages 62 through 64. A modified
test applies for the year in which an individual reaches the age of 65.
On April 7th, President Clinton signed into law
the Senior Citizens' Freedom To Work Act of 2000, which eliminates the Social
Security retirement earnings test in and after the month in which a person
attains full retirement age currently age 65. Elimination of the retirement
test is effective with respect to taxable years after Dec. 31, 1999.
In the calendar year a beneficiary attains
full retirement age, the bill permanently applies the earnings limit ($17,000
in 2000; $25,000 in 2001 and $30,000 in 2002) and the corresponding reduction
rate ($1 for every $3 offset) to all months prior to attainment of the full
retirement age. (In applying the earnings test for this calendar year, only
earnings before the month of attainment of full retirement age are
considered.)
In other words, there is no limit on earnings
beginning the month an individual attains 65. Under age 65, one dollar in
benefits will still be withheld for every $2 in earnings above the limit
($10,080 per year; $840 per month). The year a person reaches 65, one dollar
in benefits will be withheld for every $3 in earnings above the limit ($17,000
per year; $1,417 per month.) The limit applies only for the months prior to a
person's 65th birthday.
On March 22, the Senate passed H.R. 5, the
Senior Citizen's Freedom to Work Act of 2000 by a‑ vote of 1‑00‑0, and on
March 28, the House passed the Senate's version of the bill by a vote of
419‑0, clearing the measure for transmission to the President.
Expense up to $20,000 in 2000
As of January 2000, Section 179
allows eligible businesses to expense up to $20,000 of the full cost of
qualified assets (not real estate) placed in service during the year. The
expense allowance continues to increase annually until the year 2003, when it
reaches $25,000.
A partial deduction is allowable for business
purchases that exceed $200,000, but are less than $220,000. You can't take the
deduction if you have spent more than $220,000. Also you can't expense more
than the taxable income from your trade or business.
Of course, you may still elect to depreciate
the cost of an acquired business asset over time. Determining which
alternative gives the best results is part of year‑end tax planning. Call us
with any questions.
Reimbursing Employee T&E Expense
Reimbursement or allowance arrangement is a system by which you substantiate
and pay advances, reimbursements and charges for your employees' business
expenses. How you report a reimbursement or allowance amount depends on
whether it is an accountable or a nonaccountable plan. If a single payment
includes both wages and an expense reimbursement, you must specify the amount
of the reimbursement. These rules apply to all ordinary and necessary employee
‑business expenses that would otherwise qualify for a deduction by the
employee. Here are the definitions of both plans:
Accountable plan. To be an accountable plan,
your reimbursement or allowance arrangement must require your employees to
meet all three of the following rules:
- They must have paid or incurred deductible
expenses while performing services as your employees.
- They must adequately account to you for
these expenses within a reasonable period of time.
- They must return any amounts in excess of
expenses within a reasonable period of time.
Amounts paid under an accountable plan are
not wages and are not subject to income tax withholding and payment of social
security, Medicare, Federal unemployment taxes.
Nonaccountableplan. Payments to your employee
for travel and other necessary expenses of your business under
nonaccountable plan are wages and subject to income tax withholding and
payment of social security, Medicare, and FUTA taxes. Your payments are
treated as paid under a nonaccountable plan if:
- Your employee is not required to or does
not substantiate timely those expenses to you with receipts or other
documentation.
- You advance an amount to your employee for
business expenses and your employee is not required to or does not return
timely any amount he or she does not use for business expenses.
401(K) Limits Set
The maximum amount your employees may defer through 401(K) plans in 2000
increases to $10,500, up from $10,000 in 1999. These limits are adjusted for
inflation. Employees earning more than $85,000 in 2000 will be considered
"highly compensated."
In addition, the maximum wage for qualified
retirement plans increased from $160,000 in 1999 to $170,000 in the year 2000.
Economy Continues to Grow as Wages Rise
The broadest measure of the country's total output of goods and services‑the
gross domestic product‑grew at an annual rate of 5.4 percent during the first
quarter (January‑March), the Commerce Department reported. Although the growth
was somewhat slower than the 7.3% recorded near the end of 1999, it was still
"well above the level Federal Reserve officials believe can be maintained
without triggering inflation," reported the Wall Street Journal.
Consumer spending led the way by posting its
largest increase in nearly 17 years. But what really made economists sit up and
take notice was a sharp rise in workers' pay and benefits. They shot up 1.4
percent in the first quarter, the biggest advance in 10 years, reported the
Labor Department. According to the Labor Department's employment cost index, a
closely watched guage of wage and benefit costs, much of the growth reflected
rising health care premiums and the tight labor market. For the 12 months ended
in March, wage and benefit costs grew 4.3 percent, the biggest increase in eight
years. Last year, total compensation rose 3.4%. Meanwhile, the productivity of
U.S. workers rose at a smaller‑than‑expected pace in the first three months‑2.4%
in the quarter compared to 6.9 percent in the fourth quarter of 1999.
Higher wages resulted in people spending more
in the first quarter. Real personal consumption expenditures rose at an 8.3%
rate in the first quarter compared with 5.9% in the previous quarter.
Long‑lasting goods such as cars, appliances and business equipment made the
most‑purchased list. Fixed business investment rose 21.2% in the quarter,
compared with j . ust a 2.9% hike in the fourth quarter. Computer equipment and
office purchases led the way.
Fed Chairman Alan Greenspan and the Federal
Reserve's policymakers will use the data when they next consider interest rate
strategy on May 16. Another hike is anticipated
Business Mileage Rate Changes Again
Up, down and up again. The price you
pay at the pump for gas isn't the only thing that is fluctuating. Effective Jan.
1, 2000, the business standard mileage rate returned to its 1998 level of 32.5
cents per mile, up from 31 cents per mile in 1999. With the exception of the
business rate, the standard mileage rates for 2000 are the same as 1999. The
rates will be used in computing the deductible costs paid or incurred on or
after Jan. 1, 2000, of operating an automobile for business, charitable use (14
cents per mile) and medical or moving expense (10 cents per mile). If you use
the standard mileage rate, you can separately deduct business parking
fees/tolls, the business portion of state and local personal property taxes, and
the business portion of auto loan interest. Also, the IRS now allows use of the
standard mileage rate for a leased business car.
Questions about Social Security Statements?
We've Got Answers
All workers age 25 and older who are not already receiving benefits on their own
record should receive a Social Security Statement in the mail, about three
months before their birthday.
The Statement lists earnings that have been
reported to Social Security and provides estimates of the benefits workers and
their families can expect to receive now and in the future. The Statement is
intended to help you plan your financial future.
If you are an employer, here are some questions
that your employees may ask you about the Statement they receive:
Q. Why does my Statement have my old address on
it? I moved months ago.
A. If you received a Social Security Statement
showing an incorrect address, that means the U.S. Postal Service forwarded it to
you. It also means you need to contact IRS (1‑800‑829‑3676) to ask for a change
of address form (IRS Form 8822). Otherwise, you may not get your Statement next
year. The SSA does not maintain addresses for people who are not receiving
monthly Social Security benefits.
Q. Why are there several years of earnings
missing on my Social Security Statement?
A. Missing earnings could mean that you worked
for an employer who doesn't pay into Social Security, such as a government
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