Don’t Miss Your Deduction for Health Insurance, Medicare Premiums and Long-term Care

“If your business was profitable and you file a schedule C or receive a K-1, you may qualify for the self-employed health insurance deduction.”~Mitzi E. Sullivan, CPA

obamacare-this-is-going-to-hurt

With health insurance premiums and long-term care costs skyrocketing, you may need a little something to ease the pain.  The deduction for qualified health insurance, Medicare premiums and long-term care can provide significant tax savings for taxpayers who are self-employed, partners/members or more than 2% shareholders.  If your business was profitable and you file a schedule C or receive a K-1, you may qualify for the self-employed health insurance deduction.

How much can you deduct?

Generally, you may deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependents. The insurance can also cover your child who was under age 27 at the end of 2015, even if the child was not your dependent.  This includes Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance.  The deduction is limited to earnings from the business.

You can also take a deduction for premiums paid on a qualified long-term care insurance contracts and qualified long-term care services.  Your CPA can help you determine whether your deduction is limited.

What if I have income but my spouse is covered under Medicare?

This is an often overlooked deduction.  A self-employed taxpayer/partner/member/shareholder may include costs, including Medicare premiums, related to a spouse, dependent or child under the age of 27.

Qualifications, rules and limits apply.

As with all deductions, consult your CPA to determine the qualifications, rules and limits that apply.

See also: IRS Publication 535

~Mitzi E. Sullivan, CPA

M.E. Sullivan is a cloud based professional services provider specializing in cloud accounting.

It’s Time to Get SaaSy.

“Keeping your finances organized is the best tax strategy you will ever implement, and probably the best ROI you’ll ever realize.”~Mitzi E. Sullivan, CPA

QBO ScreenshotWith federal personal income tax rates up to 39.6%, tax saving strategies are a top priority for most of my clients.  If you find yourself stressed out every year around tax season, it’s time to get SaaSy.  Forget about  “back-door” Roth contributions and start with the basics.  Keeping your finances organized is the best tax strategy you will ever implement, and probably the best ROI you’ll ever realize.

Start simple.

Maximizing your tax savings begins with knowing what you’ve spent and for what purpose.  In this electronic age, that’s pretty simple data to gather.  Convert your accounting to the cloud and connect your bank and credit card accounts.  Your income and expenses will flow from most financial institutions automatically into your accounting system.  No downloading, no uploading, no backing up data, no flash drives…and no IT guy!  If you value your time, the low cost of cloud accounting is a no-brainer.

Less is more.

Sometimes, less is more.  Don’t set up a system that does more than you need.  If you are new to the cloud, start slowly.  The cloud is your friend!  Like the internet, it won’t be long before you’ll wonder what you ever did without it.

Help me help you.

Keep business and personal expenses separate, but track both.  It doesn’t take much additional work to code personal expenses since they are repetitive.  Set up some simple rules and most of your transactions will be coded automatically.

You may be surprised at how many business deductions you find in your personal account.  By tracking what you consider to be “personal” expenses, it will be easy for your CPA to look for deductions that you may have missed.  For my sole proprietor clients, I like to see P&L reports with two columns; one for “business” and one for “personal.”  With cloud accounting, I can drill down to the details to make sure they are coded correctly.  I can easily reclassify from personal to business and vice versa with a few mouse clicks.

Real time financial reporting is the most significant benefit of cloud accounting.  For tax planning, you need data in real time.  With cloud accounting properly maintained, estimating quarterly tax payments, preparing personal and business financial statements and projecting future cash flows are a breeze.

Let go of the paper!

I know this is like taking the blanket from Linus, but people, it’s time to let go.  The IRS has accepted electronic receipts since 1997.  And with OCR technology, your scanned receipts will post automatically to your accounting system.  If I need more detail about an expense, having the electronic receipt attached to the transaction saves me time and you money.  Get two or three monitors if you need them, but unless you can’t afford tables, lose the file cabinets.

A word to the wise.

You do you.  Focus your time and energy on what you do best.  If accounting is not your thing, outsource it.  But don’t ignore it.  At a minimum, have your CPA adjust your books monthly or quarterly to keep them accurate.  You can add them as an accountant user to your cloud accounting software, usually at no extra charge.  If you stay on top of it throughout the year, your year-end tax preparation bill will be significantly less.  I think you will be surprised to see all of the deductions that you’ve been missing.

…Now about those “back-door” Roth contributions.

~Mitzi E. Sullivan, CPA

M.E. Sullivan is a cloud based professional services provider specializing in cloud accounting.

Self-employment Tax Snafoos

“If you are relying on your tiered entities to shelter you from SECA, you may be in for some sticker shock.” ~Mitzi Sullivan, CPA

limited partner self-employment tax
Limited partner with self-employed income?

Since 1977, limited partners have reported distributive income as passive investment income not subject to self-employment tax.  But the times they are a changin’.  With the increased popularity of LLPs and LLCs, the IRS is looking more closely at the facts and circumstances, and less at the legal structures, of taxpayer and entity relationships.

There have been rumblings of clarification of the tax treatment of limited partner and LLC member income for SECA purposes, but Congress has made little progress.  The IRS continues to decide the treatment of distributive income on a case-by-case basis, with no concrete guidance.   The courts have consistently upheld that a passive activity under IRC Section 469 is not necessarily a passive activity under IRC Section 1402(a)(13).

If you are relying on your tiered entities to shelter you from SECA, you may be in for some sticker shock.  My advice?  Don’t rely on your K-1 to determine whether or not your income is subject to self-employment tax or ACA’s new investment tax .  Discuss your entity relationships with your CPA to determine the proper reporting.

See also:

Federal Register / Vol. 62, No. 8 / Monday, January 13, 1997 / Proposed Rules

5 Essentials for Every Nonprofit

“I always advise implementation of these 5 essential practices.”~Mitzi E. Sullivan, CPA

6045OLHDPYAs a nonprofit auditor, I frequently meet with boards of directors that are struggling to properly govern while remaining ministry focused.  I always advise implementation of these 5 essential practices.

  1. Make sure you have the basics covered.  Every nonprofit, regardless of size, should have these basic written policies.  All of these policies should be reviewed and updated annually and effectively communicated to board members and employees.  Click on the links below for some of my favorite resources, samples and templates.
    1. Conflicts of interest
    2. Code of ethics
    3. Document retention
    4. Gift acceptance
    5. Whistleblower protection
  2. Retain a schedule of required board meetings and maintain minutes for each meeting.  Every ministry is required to have at least one board meeting annually.
  3. Annually approve executive compensation and benefits and make sure they meet the criteria for reasonable compensation set forth by the IRS?
  4. Review your 990 in detail with your board of directors.  Your 990 is available for all to see and provides a unique opportunity to show your donors how you are meeting your stewardship responsibility.
  5. Have your financial statements prepared, compiled, reviewed or audited by a CPA, either in-house or by a third party.  With the new SSARS 21, CPAs have more flexibility in providing “prepared” financial statements at a reduced cost.

~Mitzi E. Sullivan, CPA

M.E. Sullivan is a cloud based professional services provider specializing in cloud accounting.