Monthly Archives: June 2012

Three basic tax areas of the Affordable Care Act

Benefits for Lower Income Taxpayers
Costs for Higher Income Taxpayers
Employer Responsibility

There is a Health Insurance Premium Tax Credit that benefits low and medium income level taxpayers. Medicare taxes are expanded and a new levy is created.  A good number of small businesses are exempt from the employer requirement.

Benefits for the less affluent taxpayers

Tax credit for health insurance. The legislation offers a tax credit to low and medium income level taxpayers. Starting 2014, there is a refundable tax credit (the “premium assistance credit”) for eligible individuals and families who purchase health insurance from an Exchange.

The refundable credit is paid to the insurer to help fund the purchase of certain health insurance plans. An eligible individual enrolls in a plan offered through an Exchange and conveys his or her income to the Exchange. The exchange analyzes the information and calculates the credit. The IRS pays the insurer. The premium amount the individual pays the insurer is the cost minus the credit. Employed individuals pay with payroll deductions.

The credit will be available for individuals and families with certain incomes levels and if they are not eligible for Medicaid, employer sponsored insurance, or other acceptable coverage.

The income test is up to 400% of the federal poverty level. The income thresholds are approximately $45,000 for an individual and $90,000 for a family of four.

Cost for more affluent taxpayers

Higher Medicare taxes. A supplemental Medicare is imposed Singles earning more than $200,000 and married couples earning more than $250,000. There is also a new Medicare levy on investments.

Medicare Taxes are the primary source of money for Medicare’s hospital program. The program pays hospital bills for participants older than 65 and the disabled. Right now workers and employers each pay 1.45%. Self-employed people pay both sides 2.90%   Under the new law, in 2013, most taxpayers will continue to pay the 1.45% Medicare hospital insurance tax, but single people earning more than $200,0000 and married couples earning more than $250,000 will be taxed at an additional 0.9% (2.35% in total) on the excess over those base amounts. Self-employed persons will pay 3.8% on earnings over the threshold.

Medicare tax levy on investments. Right now, Medicare tax is only assessed on wages. Beginning in 2013, a Medicare tax will, for the first time, tax investment income. The new 3.8% tax will be imposed on net investment income of single taxpayers with AGI above $200,000 and joint filers over $250,000. Net investment income is interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (other than property held in a trade or business). Net investment income is includes deductions against income.

Tax Tip

The new tax levy is not applicable to retirement accounts such as 401(k) plans. Also, the Medicare tax only applies to incomes in excess of the $200,000/$250,000 thresholds. For example a married filing joint return has $200,000 in wages and $100,000 in gains, $50,000 is taxed.

The employer mandate This is relevant to an employer who has employed an average of at least 50 full-time employees. This tax term is an “applicable large employer,” someone who employed an average of at least 50 full-time employees during the preceding calendar year. The law requires employers to offer coverage.

The following information is not intended to replace the services of a professional. Please consult a CPA or an Attorney who can better understand your particular circumstances. Trying to set up and/or operate a corporation of any kind without competent professional guidance is asking for serious trouble. Please contact us.


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Free Fringe Benefits For Pass-Through Entity Owners

Pass-Through Entities which include Partnerships, limited liability companies (LLCs) treated as partnerships, and S corporations have distinct tax and non-tax advantages.

The facts are that business owners considering these forms of business ought to know that fewer tax-free and tax-favored fringe benefits are available to owners of passthroughs than to shareholder-employees of C corporations. This commentary evaluates which fringe benefits can be made available to the owners of these companies.

Working condition fringe benefits

Property or services supplied by an employer to an employee are tax-free working condition fringe benefits (WCFBs) if the employee would be entitled to a business expense deduction is he/she paid for it.

Thus, owners may receive the following WCFBs tax-free:

  • Business-related use of a company auto, if properly substantiated. The personal-use value of the auto must, however, be treated as compensation income.
  • The business-use portion of company paid country club dues, even though the dues are completely nondeductible.
  • Job-related education expenses paid by the firm.
  • The use of a cell phone provided to an employee primarily for non-compensatory business reasons.

De minimis fringe benefits

“De minimis fringe” is the value of a property or service of which is so small as to make accounting for it unreasonable or administratively impracticable. For purposes of the tax-free de minimis fringe benefit rules, “employees” include any recipient of a fringe benefit. So partners are entitled to get tax-free supper or supper money or local transportation fare if provided on an occasional basis in connection with overtime work.

Other de minimis fringes include:

  • Traditional birthday or holiday gifts of property (not cash) with a low fair market value.
  • Occasional theater or sporting event tickets, and fruit, books, or similar property provided under special circumstances (e.g., on account of illness, outstanding performance, or family crisis)
  • Traditional awards (such as a gold watch) upon retirement after lengthy service.
  • Personal use of a cell phone provided primarily for non-compensatory business reasons.

For more advice concerning the benefits Owners of Pass-Throughs can claim please contact Peter Rudolph,CPA 954 596 1120

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Limited Liability Companies – 4 Things to Consider When Preparing For Tax Time

Choosing the right business’s structure should be based on your particular needs. When creating an LLC, generally there are have four basic entity types you can choose from. Learn some of the advantages and disadvantages of each.
These are the four potential options. The company has four potential business forms to operate under.
• As a sole proprietorship
• As a partnership
• As a C corporation
• As an S corporation
For taxes the LLC is a pass-through entity in three of the four options above. A pass-through entity pay income taxes at the owner level. The C Corporation pays taxes at the Company Level and at the Owner Level.
Sole Proprietorship
When there is only one member in the company, the LLC is treated as a “sole proprietorship” for tax purposes, and an individual owner would report the LLC’s income or loss on Schedule C of his or her individual tax return.

One advantage of this type of entity is the return is easy to prepare. A sole proprietor reports profit/loss on a relatively simple Schedule C. This permits the owner to organize the traditional (shoebox) listing of revenue and expenses.

One disadvantage of this type of entity is the earnings from a sole proprietorship are subject to self-employment taxes, which are currently 13.3% on the first $106,800 of income. With a corporation, only salaries (and not profits) are subject to such taxes.


When there are more two members in the company, the default tax status for LLCs with multiple members is as a partnership. Under partnership tax treatment, each member of the LLC, as is the case for all partners of a partnership, annually receives a Form K-1 reporting the member’s distributive share of the LLC’s income or loss that is then reported on the member’s individual income tax return.

An advantage of this type of entity is the options of splitting up profits and losses for the owners. Different from corporations, where earnings are divided based on each owner’s respective equity percentage, partnerships allow owners to figure the split however they want as long as they all agree to it in writing. So, for example, a partner who has a 50 percent equity stake in the business could get 25 percent of the profits and 60 percent of the losses.

A disadvantage of this entity is the earnings from a partnership are subject to self-employment taxes, which are currently 13.3% on the first $106,800 of income. With a corporation, only salaries (and not profits) are subject to such taxes.

C Corporation

To be taxed as a Corporation the LLC needs to choose to be taxed as a Corporation. Form 8832 is used for this purpose.

One advantage of the C Corporation type of entity is the availability of more fringe benefits. This type of entity offer the owners of the business better fringe benefit options.

One disadvantage of the C Corporation is that corporate profits will be subject to “double taxation”, first as corporate income and second as income to the ultimate recipient. For example, if a corporation issues dividends from its profits, it has already paid income tax on that money, but the dividends remain taxable as income to the shareholders.

S Corporation

To be taxed as a S Corporation the LLC needs to two things. First, choose to be taxed as a Corporation, Form 8832 is used for this purpose. Second, make a Small Business Election, Form 2553 is used for this purpose.

An advantage of the S Corporation is that like the LLC it receives pass through taxation. Pass through taxation simply means no federal income tax at the company level; the owners only pay tax rate at the individual level.

A disadvantage of the S Corporation are the ownership limits. In an S corporation, for example, all the owners (shareholders) need to be U.S. citizens or permanent residents. The number of owners is limited to 100 persons. Families, however, can often be counted as a single shareholder for purposes of the not-more-than-100-shareholders. The S corporation may have only one “class” of stock; no preferred stock, for example.

The following information is not intended to replace the services of a professional. Please consult a CPA or an Attorney who can better understand your particular circumstances. Trying to set up and/or operate a corporation of any kind without competent professional guidance is asking for serious trouble. Please contact us.

CPA Deerfield Beach


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Hiring a Spouse as an Official Employee

Tax Planning

Tax Planning

This can create benefits. Here are two easy tax advantages for putting a spouse on the payroll of an S Corporation

 Accumulated tax deferred funds for retirement When the employee meets the tax-law requirements your company can deduct

contributions. The spouse has to be an official employee with a business purpose.

Contributions to a qualified retirement can create real savings. The annual contributions limits are quite generous. The easiest plan to set up is either a Solo §401(k) or a SIMPLE IRA. With a Solo §401(k) plan, your spouse can defer up to $17,000 to the plan (plus an extra $5,500 if he or she  is age 50 or older). Your company can match those contributions wholly or partially up to tax-law limits.

Get more tax deductions from business trips Generally, you can’t deduct the travel expenses attributable to your spouse if he or she accompanies you on a business excursion. However, if your spouse is a bona fide company employee and goes for a valid business reason, you may deduct his or her travel costs, including air fare, lodging and 50% of the meal expenses. The benefit also is tax-free to your spouse.

CPA Deerfield Beach


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Filed under Deductions, Payroll, Retirement Planning, Tax Planning

Tax breaks to those who do volunteer work for charity

Charitable deduction

Charitable deduction

Thanks to the people in this world that do volunteer worker for a charity. We believe that you should be aware that your generosity permits deductions/tax breaks.

To many taxpayer’s surprise no tax deduction is allowed for the value of services you perform for a charitable organization. However some deductions are permitted for out-of-pocket costs you incur while performing the services (subject to the deduction limit that generally applies to charitable contributions).  This includes items such as:

Away-from-home travel expenses while performing services for a charity (out-of-pocket round-trip travel cost, taxi fares and other costs of transportation between the airport or station and hotel, plus lodging and meals). However, these expenses aren’t deductible if there’s a significant element of personal pleasure associated with the travel, or if your services for a charity involve lobbying activities.

The cost of entertaining others on behalf of a charity, such as wining and dining a potential large contributor (but the cost of your own entertainment or meal is not deductible).

If you use your car while performing services for a charitable organization you may deduct your actual unreimbursed expenses directly attributable to the services, such as gas and oil costs. Alternatively, you may deduct a flat 14¢ per mile for charitable use of your car. In either event, you may also deduct parking fees and tolls.

You can deduct the cost of a uniform you wear when you do volunteer work for the charity, as long as the uniform has no general utility (e.g., a volunteer ambulance worker’s jumpsuit). You can also deduct the cost of cleaning the uniform.

No charitable deduction is allowed for a contribution of $250 or more unless you substantiate the contribution by a written acknowledgment from the charitable organization. The acknowledgment generally must include the amount of cash, a description of any property contributed, and whether you got anything in return for your contribution. This presents a problem where you as a volunteer make a contribution on behalf of rather than directly to a charity. One way around this is for the charity to pay for the expenses, itself, and then be reimbursed by you (or you can make the donation before the expense is incurred). If this isn’t possible, you can safeguard your deductions as follows:

Get written documentation from the charity about the nature of your volunteering activity and the need for related expenses to be paid. For example, if you travel out of town as a volunteer, get a letter from the charity explaining why you’re needed at the out-of-town location.

If you are out-of-pocket for substantial amounts, you should submit a statement of expenses and, preferably, a copy of the receipts, to the charity, and arrange for the charity to acknowledge in writing the amount of the contribution.

You should maintain detailed records of your out-of-pocket expenses—receipts plus a written record of the time, place, amount, and charitable purpose of the expense.

We would be happy to assist you with any other questions you may have about deductions related to your charitable contributions.

CPA Deerfield Beach


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Filed under Charity, Deerfield Beach CPA, Organized Records, Tax Planning