Small Business Health Care Tax Credit

As a result of the Affordable Care Act (ACA), qualified small employers may be eligible to receive a tax credit for a portion of the health insurance premiums paid on behalf of their employees. The Internal Revenue Service recently released a reminder regarding the credit.

There are several requirements for small businesses to qualify for the credit. The small business must have fewer than twenty-five (25) full time equivalent employees, pay an average wage of less than $50,000 a year, and pay at least half of the employee health insurance premiums. Additionally, the employers must be enrolled in a qualified health plan offered through a Small Business Health Options Program Marketplace, or meet certain exceptions to the requirement.

The maximum credit is 50% of the premiums paid. Portions of the credit are phased out for employers paying employees over $25,000 and employers with more than 10 full time employees. The credit may not be claimed for more than two consecutive years.

If your business might qualify for the Small Business Health Care Tax Credit, a calculator is available through Healthcare.gov to estimate your tax credit, see https://www.healthcare.gov/shop-calculators-taxcredit/

© 2016 Vandenack Williams LLC
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Nebraska Legislature Authorizes Review of Nebraska Securities Act

By M. Tom Langan, II

The Nebraska Legislature recently passed a resolution calling for a study on whether the Securities Act of Nebraska should be updated. The resolution, LR 431, calls for a Banking, Commerce and Insurance Committee to be created to conduct the study.  No other parameters for the study have been provided; however, it could be an indication that the Legislature is considering adopting a version of the Uniform Securities Act of 2002 which has been adopted by at least 14 other states.

© 2016 Vandenack Williams LLC
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ABLE Accounts for Individuals with Disabilities

Financial planning for a family that includes an individual with disabilities, especially those without the resources to fully fund a special needs trust, often has substantial challenges. In December of 2014, the United States Congress passed legislation permitting families with individuals who develop a disability before age 26 to save for future expenses in an account that will grow tax-free. The Stephen Beck, Jr., Achieving a Better Life Experience (“ABLE”) Act of 2014, allows families to save in an account akin to a 529 college savings account. Those hoping to take advantage of the program must wait for their state to statutorily adopt the program, however many states, including Nebraska, have already acted.

An ABLE account holder can save up to $100,000 in the account and still be eligible for social security, Medicaid, and other federal programs. The annual limit for all contributions to an account is $14,000, paid from after-tax contributions. Although the contributions are after-tax, the disbursements, including the interest growth in the account, are tax free if spent on qualifying expenses. A qualifying expense for an individual with a disability includes “education, housing, transportation, employment training and support, assistive technology and personal supports services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight.”

On June 22, 2015, the Internal Revenue Service (“IRS”) issued proposed regulations to implement the law pertaining to ABLE accounts, enabling states to fully adopt the program. These proposed regulations have a variety of limitations, such as requiring the beneficiary to be a resident of the state where the ABLE account is created, requiring the beneficiary to have an eligible disability, limiting each beneficiary to one account, and limiting the investment direction a designated beneficiary can make to twice a year. Other aspects of the proposed regulations include limitations on types of contributions, specific accounting procedures, and options for states to contract with other states for administering programs.

The tax provisions in the proposed regulation include applying Internal Revenue Code (“IRC”) § 72 to distributions from the ABLE account. Under this section, all distributions during a tax year are treated as one distribution in that year and the value of the account is computed at the end of the calendar year. Further, if a distribution from an ABLE account is not for a qualifying expense, the distribution is includable in gross income for that taxable year. That means the distribution will be included as taxable income, as well as incurring an additional 10% tax on the amount of the distribution included in gross income. However, if the non-qualifying distribution occurs after the beneficiary dies or the distribution is a result of an excess contribution, the added 10% tax does not apply.

Another tax provision includes the application of the gift tax to ABLE account contributions by a person other than the designated beneficiary. Under the proposed regulation, the contribution is immediately considered a completed gift to the designated beneficiary and not a future transfer under IRC § 2503(e), thus any future distribution is not a taxable gift to the beneficiary. However, when the designated beneficiary dies, the amount remaining in the ABLE account is part of the beneficiary’s estate for purposes of the estate tax.

In Nebraska, Legislative Bill 591 was signed into law on May 27, 2015, formally adopting the program. The law, known as Nebraska ABLE, will allow qualifying individuals in Nebraska to take advantage of the program. At this time, however, it is unclear exactly how the state program will operate as the law allows the Nebraska State Treasurer to either establish a program within the state or contract with another state to provide for the accounts.

It is expected that final regulations will be issued at some point in the future, but the IRS states that the proposed regulations may be used and relied upon for creating programs and accounts. Those states that adopt programs and individuals who create an ABLE account based upon the proposed regulations will receive the benefits of IRC § 529(a), regardless of whether the final regulations impact the qualification of the ABLE program.

© 2015 Houghton Vandenack Williams
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Hiring Your Child for Additional Tax Savings

Family business owners may be able to save on taxes this summer by hiring their children. Hiring a son or daughter allows the family to engage in “income shifting.” Income shifting in family businesses usually happens through paying wages. The wage money, which would ordinarily be taxed at the parents’ high marginal tax rates, is instead taxed at the child’s lower rates. However, be sure to evaluate whether additional payroll taxes incurred will offset or eliminate any income tax advantage available.

The family business may be able to generate more tax savings by having the child make a deductible IRA contribution. That contribution could offset up to $5,500 in taxable income for 2013. Similarly, effective use of education credits can also help minimize the family’s tax bill. If you decide to hire your child, remember that his or her wages will almost always be subject to withholding.

For additional information, view our full article on this topic.

© 2013 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com

Documentation Is an Important Strategy to Minimize IRS Issues

Many medical and dental practices use multiple entities for a variety of reasons.  A recent Tax Court case emphasized the importance of proper documentation and careful planning to achieve good tax results.  In the recent case, a dentist created a separate business entity to manage operations.  The Tax Court refused to allow him to deduct his management fees because of poor documentation.

If you are using a separate business entity for any reason, adopt the following practices:

  • Keep separate and complete records for each entity. Respect the separate existence of each entity.
  • Document transactions between the entities, especially payments. Formalize leases and management agreements in writing. Keep entity minutes up to date.
  • Be aware of the passive activity rules and consider income types when planning multiple entities.

© 2013 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com

Year-End Writeoffs for Business Equipment Purchases

In light of uncertainty about whether certain tax incentives will be extended for another year, taxpayers should consider making eligible purchasing decisions before the end of the year. Taxpayers may claim a 50% bonus first-year depreciation allowance on certain property acquired and placed into service during 2012. The allowance may be claimed regardless of how long the property is in service during the year. While accelerating equipment purchases may not be appropriate for all businesses, the bonus first-year depreciation can have substantial benefits. For example, if a business puts $100,000 of eligible equipment into service this year on a five-year depreciation schedule, the business could claim $60,000 of depreciation in 2012. If it waited until 2013, the business might only be able to claim $20,000 of allowable depreciation.

Employers should also consider taking advantage of favorable expensing limits in 2012. Certain taxpayers may, rather than depreciating certain property placed in service, elect to deduct specified amounts as an expense. In 2012, the dollar limitation on the expense deduction is $139,000. Absent action by Congress, the limit will drop to $25,000 in 2013.  Eligible property is typically machinery and equipment, and includes off-the-shelf computer software until 2013. As a result, companies that have purchased less than $139,000 in eligible equipment should consider accelerating equipment purchases into 2013. By doing so, they may be able to claim up to the limitation on the expense deduction immediately rather than claiming depreciation over the life of the equipment.

© 2012 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com

Tax Court Disallows Management Fees Paid to Related Entity

In Fuhrman, TC Memo 2011-236, the Tax Court had held that management fees paid to a taxpayer’s wholly-owned corporation from the taxpayer’s single-member LLC were improper and lacked appropriate support and documentation to be deductible expenses.

 Mr. Fuhrman owned several trucking companies that in the aggregate operated a trucking business for the transportation of goods. For liability and other business purposes, the business was separated into various asset holding, personnel and operational companies. The various companies contracted with one another to operate the business. Despite the significant related party transactions required to provide trucking services, Fuhrman failed to execute asset leases, management service contracts and other agreements among the entities that would be expected in similar arms-length transactions. For 2004 and 2005, Fuhrman’s SMLLC claimed approximately $110,000 each year for management services paid to a corporation also owned by Fuhrman which were reported as “Other Expenses”. Following an audit, the IRS determined that approximately $60,000 of these expenses for each year were improper. Upon review, the Tax Court sided with the IRS and determined that the amounts charged for management services were not supported by evidence and were not ordinary and necessary business expenses. This case, once again, demonstrates the importance of memorializing related party transactions through proper agreements and documenting how the amounts paid between related parties is determined.

 For those businesses, with more than one entity, proper inter company documentation matters.

© 2012 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com