Category Archives: Self-employed

Early Year-End Tax Planning To Take Advantage Of Possible Tax Reform

Wouldn’t you like to know about early year-end tax planning to take advantage of possible tax reform?

So, why do we think early tax planning is appropriate this year? Actually, with the prospect of major tax reform on the horizon, some strategies can be put into place before the end of the year that can substantially reduce your 2017 tax bill. That would be nice.

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Do I Have to File a Tax Return?

When must I file a tax return by?

Do I have to file a tax return? This is a question many taxpayers ask during this time of year – tax time. The question is far more obsure than people believe. To fully understand, we need to consider that there are times when individuals are REQUIRED to file a tax return, and then there are times when it is to individuals’ BENEFIT to file a return (even if they are not “required” to file). Continue reading

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Childcare Providers Enjoy Special Tax Deductions

Childcare providers, did you know that the tax law provides you with special tax breaks. Daycare tax breaks are not limited to childcare providers only. They also include those who care for the disabled and eldercare providers as well. These daycare tax breaks include deductions for travel, capital purchases, supplies, children’s meals and the business use of your home. Continue reading

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Mid-Year Tax Check: July Tax Deadlines

Are you ready for your mid-year tax check up? No, we are not talking about at your doctor’s office. We are talking about at your tax preparer’s office. You would think July would give you some vacation time from tax deadlines. These tax due dates are fast approaching for July. Continue reading

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Hiring Your Spouse and Providing Health Benefits

By: Cindy Toran, MBA, BA

hiring your spouseHave you ever thought of hiring your spouse? If you did, should you provide them with health insurance?

There are potential advantages and disadvantages to formally hiring your spouse if you own a small business as a sole proprietor or single-member LLC. Keep in mind that you can only do so if he or she plays a bona fide role in providing services to your business, such as office work or marketing.

The disadvantage to hiring your spouse is that it may result in added employment tax filing (such as FICA, Medicare, but not FUTA). However, this also reduces taxable income.

Advantages to Hiring Your Spouse

  • Your spouse is able to build up Social Security benefits.
  • Reduction in self-employment tax for sole proprietor (15.3% up to $117,000 earnings for 2014). However, 50% of the amount paid reduces the Adjusted Gross Income (AGI). This could impact other tax deductions.
  • Your spouse can be provided health insurance coverage that includes all family members (including the sole proprietor).

NOTE: This can be a significant advantage. If you are hiring your spouse as your only employee, this will provide the maximum benefit. This fringe benefit will reduce both income tax and self-employment tax.

Here is how the last advantage works for hiring your spouse. There is a 100% tax deduction for the following medical expenses for the employee and family (including the employer’s spouse):

  • Health insurance premiums
  • Uninsured medical, dental and vision care expenses
  • Other deductible benefits, such as premiums for term life insurance up to $50K, accident and disability.

Thus, all medical expenses and insurance premiums would be 100% deductible expenses of the business, assuming the total compensation package is considered reasonable for the duties being performed.

Keep in mind, however, that ALL employees must be offered the same benefits.

Here is an example:

John is a self-employed consultant with no employees. John hires his spouse, Peggy. Peggy’s job description is to perform bookkeeping and research duties for John.

An employment contract is prepared. The contract states that Peggy will receive $20 per hour. John prepared a written medical reimbursement plan. The plan states the following: “The employer will reimburse all employees for medical care expenses of each employee, his or her spouse and his or her dependents.”

John paid Peggy $16,000 in wages in 2014 for 800 hours of work. He also filed all employment tax returns. John reimbursed Peggy $9,000 by check for medical expenses. These included doctor and dentist bills not covered by health insurance. These medical expenses were incurred during 2014.

Peggy’s salary, payroll taxes, and the medical reimbursement are all valid business expenses.

What about you?

If this scenario fits your small business, do some calculations to see if you would benefit financially from hiring your spouse. Also, check with a trusted tax professional to be sure you meet all qualifications.

Do you have a trusted tax professional?

Maybe you are too busy to work through the calculations for how hiring your spouse may affect your tax returns. Perhaps you are at a place in your business you need tax advice. Do you have thoughts, questions or concerns regarding this subject? Please feel free to contact us, leave your comments below or post to on our FacebookGoogle+ or LinkedIn pages.

Maybe you know someone who can benefit from this information, feel free to share:
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Tax Season is Here!

Time flies – before it slips away, call Alex Franch, EA at 781-849-7200 for your appointment and learn about our client discounts here.

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The Dark Side of Simplified Home Office Deduction

by Alex Franch, Tax Specialist

2014_11_26 the Dark Side medium_13658502903In 2013, the IRS implemented an optional simplified method of calculating the Home Office Deduction. The intention was to reduce the paperwork and record keeping burden on small businesses. Limited and capped at $1,500 per year, it is based on a standard square footage amount of five dollars for up to 300 square feet.  Thus, the simple calculation is $5 x sqft, up to $1500.  Taxpayers using the new option will deduct no depreciation. Mortgage interest and real estate taxes will be Itemized deductions (Schedule A).

Sounds simple, right? However, there are some limitations for home office deductions:

  1. The amount of deduction is limited to the amount of business profit, excluding the home office deduction. This is no different from the actual cost method of calculation.
  2. BUT for any unused home office deduction there is no carryover to future years when your business produces a profit. The actual cost method, of course, could be carried forward to offset income in future years.

NOTE:  The simplified option does not change the criteria for claiming a home office deduction.
For example, the home office must be used regularly and exclusively for business purposes. The election to use either calculation option is irrevocable once chosen for a year but can be changed each year.

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photo credit: Glenn Brown via photopin cc

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