Are you Wasting Tax Benefits?

by in Tax Issues

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.

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About the Author - Eva Rosenberg

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


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