Strategies for Individual Wealth Management: Key Tax and Financial Considerations for Individual ASC Owners Robert Crigler, CPA President / Chief Operating Officer Mariner Wealth Advisors, LLC Steve Goodman, CPA Managing Director The Goodman CPA Group

Agenda 1.Tax Rates 2.Phantom Income 3.Tax on Sale of ASC Interests 4.Retirement Planning/Plans o 401 k plans o Cash Balance Plans

Federal Tax Rates 2015 Income Tax Brackets The Federal income tax has 7 tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. The amount of tax you owe depends on your filing status and income level. It's important to realize that moving into a higher tax bracket does not mean that all of your income will be taxed at a higher rate.

Federal Tax Rates Individual Taxpayers

Federal Tax Rates Married Individuals Filing Joint Returns

Additional Federal Taxes Additional Medicare Tax on Wages, railroad retirement (RRTA) compensation, and self- employment income over certain thresholds: Employers are responsible for withholding the tax on wages and RRTA compensation in certain circumstances. Additional Medicare Tax went into effect in 2013 and applies to wages, compensation, and self-employment income above a threshold amount received in taxable years beginning after Dec. 31, Medicare Tax on earned income is 0.9 % on income of $250,000 (Married Filing Joint); on earnings of $200,000 (Single) Net Investment Income Tax: The law requires a tax of 3.8 percent on the lesser of either your net investment income or the amount by which your modified adjusted gross income exceeds a threshold amount based on your filing status Net investment tax of 3.8 % on income of earnings of more than $250,000 (Married Filing Joint); on earnings of more than $200,000 (Single) and generally includes income such as: Interest, Dividends, Capital gains, Rental and royalty income, and Non-qualified annuities.

NYS Tax Rates Married Filing Joint Returns IncomeMarginal Tax Rate $0+4.00% $16, % $22, % $26, % $41, % $154, % $308, % $2,058, % Individual Returns IncomeMarginal Tax Rate $0+4.00% $8, % $11, % $13, % $20, % $77, % $205, % $1,029, %

NYC Tax Rates Married Filing Joint ReturnsIndividual Returns IncomeRate $0 to 12, % $12,000 to 25, % $25,000 to 50, % $50,000 to 500, % $500, % IncomeRate $0 to 21, % $21,600 to 45, % $45,000 to 90, % $90,000 to 500, % $500, %

Phantom Income Partnerships, LLCs and S Corporations Partnerships, limited liability companies (LLCs) and S corporations are all what’s known as “pass-through” entities. That means they are generally not taxed themselves, as C corporations are. Rather, their owners are taxed. Each owner receives a Form K-1 that reports his or her appropriate share of the income (or loss) even if that income is retained by the business and not distributed to the owners. You are generally obligated to report on your tax return the amount attributed to you on Form K-1. Whether you received any payout is really irrelevant to the tax question.

Phantom Income Phantom Income is created by the following: 1.Principal Loan Payments 2.Capital Lease Payments 3.Working Capital Reserve 4.Future Equipment Reserve 5.Depreciation

Phantom Income Real Estate or Practice Income Year 1Year 2Year 6 Cash Income from Operations 2,000,0002,250,0003,400,000 Principal payments on debt (560,000)(585,000)(700,000) Cash Available for Distributions 1,440,0001,665,0002,700,000 Taxable Income on K-1 2,000,0002,250,0003,400,000 Principal Loan & Capital Lease Payments

Phantom Income Real Estate or Practice Income Year 1Year 2Year 6 Cash Income from Operations 2,000,0002,250,0003,400,000 Working Capital / Equipment Reserve (400,000)(200,000) Cash Available for Distributions 1,600,0002,050,0003,200,000 Taxable Income on K-1 2,000,0002,250,0003,400,000 Working Capital Reserve & Reserve for Equipment Purchases

Phantom Income Real Estate or Practice Income Year 1Year 2Year 6 Cash Income from Operations 2,000,0002,250,0003,400,000 Depreciation(400,000) (64,000) Taxable Income on K-1 1,600,0001,850,0003,336,000 Cash Available for Distributions 2,000,0002,250,0003,400,000 Depreciation Assumptions: $2.5MM Leasehold Imp & $2MM Equipment purchase

Phantom Income Real Estate or Practice Income Year 1Year 2Year 6 Cash Income from Operations 2,000,0002,250,0003,400,000 Principal payments on debt (560,000)(585,000)(700,000) Working Capital / Equipment Reserve (400,000)(200,000) Cash Available for Distributions 1,040,0001,465,0002,500,000 Depreciation(400,000) (64,000) Taxable Income on K-1 Phantom Income 1,600, ,000 1,850, ,000 3,336, ,000

Taxable ASC Interests Multiples of EBITDA: Sale of ASC Interests 2014 Survey Source: Healthcare Appraisers 2014 Survey

Taxable ASC Interests Multiples of EBITDA: Sale of ASC Interests 2015 Survey Source: Healthcare Appraisers 2015 Survey

ASC Statistics Source: Reed Smith LLP & HealthCare Appraisers presentation

Taxable ASC Interests Scenario 1Scenario 2Scenario 3 Sale Price (Redemption of Units) 500,000 Partner’s Capital Account Balance 160,000 Partner’s Outside Basis 50, Accounts Receivable (FMV Partner’s share) 80,000120, Total Gain on Sale290,000340,000 Capital Gain Ordinary Income 210,000 80, , , ,

Today’s Objectives Gain an understanding of the basics of financial planning and how a company’s compensation and benefit programs can add to your financial well-being Gain an understanding of basic investing concepts and how to develop your investment plan Identify the actions you can to significantly enhance your financial well-being

The Value of a Financial Plan A financial plan will help you to clarify: Your financial goals Strategies to achieve the goals Specific steps to implement the strategies

Areas to Explore Saving Managing debt Insurance Investing Education funding Retirement funding Pre-retirement planning Incapacitation planning Estate planning Company stock ownership

What Do You Want? Set your financial planning goals Each goal will have its own horizon –For the period of accumulation –For the period over which it will be spent Start with broad ideas and work toward increasingly specific and measurable goals

Life’s Financial Trade-Offs 23 CURRENT NECESSITIES FUTURE NECESSITIES CURRENT EXTRASFUTURE EXTRAS Basic shelter, food clothing, transportation and medical care Basic shelter, food clothing, cash for emergencies and nursing home care Largerhome, private college, retirement travel, bequests/charity New kitchen, new car, vacation, family gifts Trade-offs

Debt Ratios Housing expense ratio –Housing expenses (mortgage, taxes and insurance) should not exceed 28% of gross income Debt to income ratio –Total consumer debt (not including mortgage) should be less than 20% of net income

Warning Signs of Too Much Debt Unable to save 10% or more of gross income Habitually pay only the minimum monthly payments on your credit cards Borrowed from one lender to pay another Unable to figure out how much you owe Would be in immediate financial trouble if you lost your job tomorrow

Conquering Debt Stop borrowing Start using a debit card Prioritize your debt repayment Seek lower rates Determine the maximum you can pay Repay highest cost debt first Continue paying the maximum

Key Saving and Investing Concepts Saving versus investing Combining saving and investing Saving and investing early Tax-deferred saving and investing Tax-deductible saving and investing Saving and investing using employer contributions

Investing Post-tax (Taxable) vs. Investing Pre-tax (Non-Taxable) Yearly Amount Invested After-tax Yearly Amount Invested Pre-tax Investment$200,000-80,000 = 120,000200,000 Effective Interest Rate2.5%5% After 5 Years$631,123$1,107,694 After 10 Years$1,346,186$2,529,263

Retirement Planning Case Study – Small Medical Practice Source: Goldleaf Partners Owners (2) contribution: $297,960 Employee (4) contribution: $14,568 Tax Savings: $125,011 Net cash out flow: $187,517

Retirement Planning Case Study – Midsize Medical Practice Owners (2) and Highly Compensated Employee (1) contribution: $273,700 Employee (8) contribution: $64,980 Tax Savings: $135,472 Net cash out flow: $203,208 Source: Goldleaf Partners

Retirement Planning Case Study – Midsize Ambulatory Surgery Center Source: Goldleaf Partners

Retirement Planning Case Study – Midsize Ambulatory Surgery Center Highly Compensated Employees (13) contribution: $2,431,750 Employee (12) contribution: $206,986 Tax Savings: $1,055,494 Net cash out flow: $1,583,242

Strategies for Individual Wealth Management: Key Tax and Financial Considerations for Individual ASC Owners Take Away Thoughts: 1.Partnerships, limited liability companies (LLCs) and S corporations are all what’s known as “pass-through” entities and are taxed at the owners tax rate. 2.Federal tax rates are currently as high as 44.3%: i.Ordinary rate 39.6%; ii.Additional Medicare tax on earnings 0.9%; iii.Net Investment Tax 3.8%. 3.NYS tax rate is currently as high as 8.82%. 4.NYC tax rate is currently as high as 3.876%. Combined NYS/NYC highest tax rate %. Combined Federal & NY highest tax rate %

Strategies for Individual Wealth Management: Key Tax and Financial Considerations for Individual ASC Owners Take Away Thoughts: 5.Phantom Income is typical in most Partnerships, Limited Liability Company’s (LLC), and S-Corporations. Prepare for the tax consequence early. 6.Consider the tax consequence on the sale of the ASC interest you hold. Capital Gain tax rates are as high as 23.8%; Ordinary rates are as high as %. 7.Evaluate your personal financial position. Can you retire when you’re ready? Are your estate goals in place? Consider talking to a financial advisor. 8.Reduce taxes by establishing a 401k Plan combined with a Cash Balance Plan for your practice, Group, or Center.

QUESTIONS

Robert Crigler, CPA President / Chief Operating Officer Mariner Wealth Advisors Madison, NJ (973) Steve Goodman, CPA Managing Director The Goodman CPA Group Marlboro, NJ (732) The Goodman CPA Group