Are you Wasting Tax Benefits?

by in Tax Issues

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It’s nearly October. Your children are back in school. You have some time to yourself, finally. And perhaps some time to think – and plan.

This is the perfect time to do some tax planning.

What tax benefits are you overlooking, that you should have, or could have, gotten this year?

Here’s a list of things to consider. Set up an appointment with your tax professional to discuss how they apply to you – and how you can implement them. You may still be able to take advantage of these provisions this year!

  • Health insurance – being self-employed, you have several options.
  • A Health Savings Accountand related coverage.
    • This is also deducted on the front of your tax return without reducing self-employment taxes.
    • BUT, this allows you to set up an IRA-like savings account. The money you don’t use can be invested, to grow tax-free, just like an IRA.
    • Deduct all your family’s Medical Expenses, including health insurance
      • There is something called a Sec 105 plan your small business can implement.
      • You need to hire your spouse as an employee – and provide full medical coverage as part of his or her compensation.
      • Your spouse must actually WORK for the business (and you’d be wise to document the work – not just answering occasional phone calls).
      • You can then deduct the FULL amount of the health insurance, co-pays, out of pocket medical costs – and anything that legitimately qualifies as medical expenses (including special, remedial schooling, therapy of all kinds, etc.) – up to the amount of the spouse’s total wages.
      • These expenses are deducted by the business and do reduce self-employment taxes, as well as income taxes.
      • One of the better established services to offer this plan is Agri-Biz Plan. They started doing this with farmers, way back in the dark ages.
      • Or you can talk to your payroll service (since you need to do payroll for the spouse anyway) to see if they offer the service.
      • Retirement plans – you have a whole array of options. These two are the easiest.
        • Fixing LAST YEAR. Did you know that you still have time to set-up and fund a retirement plan and get a deduction for 2011 – as long as you haven’t filed your tax return yet AND you’re on extension?
          •  Yup. Talk to your tax pro about a SEP-IRA. You can still fund 2011 for up to $49,000.
          • Naturally, you can open one for this year. And you have until next October (2013) to finish funding it to get a deduction for 2012.
  • SIMPLE (IRA or 401k) – limited to $11,500 ($14,000 over age 50) per person, per year + an employer contribution of up to 3% of wages (or profits – for self-employed owner).
    • This MUST be established by September 30th in order for you to use it for 2012! (OK, it’s really October 1st – but I don’t want you to miss the dealine.)
  • Other retirement options – there are several more options for small businesses, that you can explore in IRS Publication 560.

Naturally, there are more things you can do to reduce this year’s taxes, but I don’t want to overwhelm you. Two tasks – health care and retirement are enough for today. If you want more – read Chapter 10 of Small Business Taxes Made Easy.

About the Author - Eva Rosenberg

Eva Rosenberg, EA, founder of the popular tax advice site, www.TaxMama.com, is a nationally syndicated Dow Jones columnist at MarketWatch.com, an author and popular speaker and instructor. Please join the TaxMama family and get answers to your own tax questions.

 

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