Q&A from Tax Secrets to Keep More of What You Earn!

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1 Q&A from Tax Secrets to Keep More of What You Earn! I am set up as a single member LLC who elected to be treated as an S-Corp. I've recently added my daughter in company. Do I file S-Corp 1120-S and issue schedule K to her (based on % ownership..i.e.5)? If your daughter has been issued shares in the company, she will be issued a form K-1 reporting her proportionate share of earnings and losses from the business. You should also be aware that depending on the value of the shares given to your daughter, she may have tax due on the value of these shares. There are many powerful strategies you can use to transfer ownership of your business to family and other heirs. Be sure to incorporate this in your ProActive Tax Plan to create savings today and in the future. How does the Medical Reimbursement work after the ACA? The Medical Expense Reimbursement Plan (MERP) can still be a powerful tax planning tool even after the adoption of the Affordable Care Act (ACA). Depending on what is covered in each individual MERP, if the business is a qualifying Small Employer, they may also qualify for a tax credit of up to 50% of any medical insurance premiums covered. This has been an often overlooked opportunity that is missed by many business owners. It is even possible to amend your prior year tax returns to receive refunds if this is something you overlooked. Your tax planner should be able to provide you with an estimate of tax savings and potential refunds available to you. Unless your daughter is a public figure, deducting for her braces would seem to be unethical. What am I missing? When you implement a Section 105 Plan, you can reimburse your employees for their out of pocket medical and dental expenses. These reimbursements are then deducted as employee benefits on your tax return. You can learn more about MERPs here. If I get paid via a 1099 instead of W2, is that considered as self employed and if so, would I be able to deduct my healthcare premiums and expenses? Yes, when you receive a form 1099, you are now a business owner! Your taxes will change dramatically and can either increase due to Self Employment tax, or decrease with proper ProActive Tax Planning. It will help you in your new endeavor to find out what you should consider now that you are earning your income differently. Your tax planner should be able to tell you immediately how much you can save with tax planning. I just started my business this year and do not expect to earn any income from the business - what can I include as part of expenses? Even if you have not profited from your new business, you are still entitled to report any expenses necessary for your new business. Your ability to deduct these expenses against other forms of income you may have will depend on your participation level in the business. If you ve spent more than you ve earned in your first year in business, this loss may be available to be deducted against income from your past or in the future so don t ignore it! Good planning can help you evaluate the best strategy for putting these losses to work for you and can even result in cash back from prior tax years. I'm not planning to pay myself a salary any time soon, but I would like to start re-paying myself the start-up money I put into the business. Do I have to pay taxes on this? Any loans made to the business which are repaid to the owner are not taxable income. The word "Renovation" was listed as a Tax Credit. I renovated my kitchen, added a roof, and updated windows. Those items, specifically the kitchen, can be deducted? I thought it was an improvement, not a deductible. If you are eligible for the home office deduction, you are also able to deduct qualifying home improvements equal

2 to the business use percentage of the home. These improvements are depreciated but can be a great way to turn after tax dollars into pretax dollars a very powerful tax planning strategy! What are some examples of non taxable income? Nontaxable income can generally mean municipal bond interest, annuities, earnings from a ROTH IRA, and other tax advantaged income. If you have a partner, do both partners have to have the same business deductions? If you operate your business as a partnership (even without formalized partnership documents) each partner is generally required to report his or her proportionate share of earnings and deductions. In some cases, it may make sense in your ProActive Tax Strategy to make what are called special allocations which are permitted in partnerships. These allocations allow you to share disproportionately in earnings and deductions of the business and can be a powerful part of your tax plan. Your tax planner can provide you an estimated tax savings on implementing this for you. Can you take the sales tax deduction if you itemize Yes, this deduction is permitted through December 31, This deduction is scheduled to expire at the end of December 31, 2013 unless extended by Congress. In terms of taxes, what is your best advice or tip for small C Corp business owners? My best advice for small C corporation business owners is to avoid the most expensive tax mistake which is failing to plan. Get started right away especially before the end of the year to make sure you ve locked in all your tax breaks before it s too late. You can work with a tax planner who can provide a free estimate of what you can save with a ProActive Tax Strategy and give you a sense of what needs to be done right away. Can you take sales tax deduction and state income tax deduction? You must choose between the two. It makes sense to see which deduction results in a higher deduction. Is that point about the tax benefits of IRAs also apply to Roth IRAs? Or Traditional IRAs only? Traditional IRAs can provide up front tax breaks for your contributions, while ROTH IRAs offer back end tax breaks. Instead of taking a deduction for amounts you deposit into a ROTH, earnings and deposits generally grow tax free. How can you deduct a home office if you live in a studio? Your home office does not have to be a separate room if you can segregate a space in your studio using for example a room divider and prove it is only used for business, you can qualify to deduct this space for your home office. To satisfy the exclusive-use rule, ensure that the portion of the room used for business purposes are separately identifiable spaces. You cannot deduct expenses for the business use of your home if the designated area is used for both business and personal reasons. Can SubS corporations take the Sales Tax Deductions? The Sales Tax Deduction is a personal deduction reported on Schedule A of an individual taxpayer s form If you have made purchases for items used in your business, you may qualify to deduct the sales tax as a business expense on your S corporation tax return. I telework from my home office regularly in my day job, but it is also my sole/primary place to conduct my business out of. How does that count/work? You have to use your office regularly and exclusively for business. If you claim home office deductions for space you use as an employee, you have to show that your employer requires you to maintain the office for the employer s convenience. Since you use the space for more than one business purpose, both have to qualify to take the deduction.

3 How can you pay down your mortgage in a home based setting? Is there a way to pay yourself to accomplish this? Mortgage principle payments are a non deductible payment. One way I can see paying down your mortgage in a tax advantaged way might be to invest your tax savings from ProActive tax planning by paying down your mortgage. Let s say for example, you optimize your tax expense by using a more efficient business entity and it saves you $7,000 per year in tax. Consider using this money to make principle payments on your home mortgage. My accountant says: because we own our property and operate as an S-Corp, we can't write off because it's like we're paying ourselves - can you provide insight? If you operate your business as an S corporation, you can generally deduct a home office as a reimbursed expense under an accountable plan. It takes a little advanced planning, but can be accomplished by following all the rules. Can you use this if you have an office but also do a lot of work at home like weekends (20 hours a week) You may still be eligible to claim the home office deduction even if you have another place where you conduct your business. To deduct the business use of home expense you must regularly and exclusively dedicate a portion of your home as either: your principal place of business and/or exclusively as the place to interact with customers, patients, or clients in your regular business operations. Mileage from driveway to business location? Is that what you mean? Auto deductions do not include driving for personal reasons; therefore commuting is generally considered a personal expense and is not deductible. However if you use a home office as your primary place of business, every trip you take (including to your additional work places is generally deductible. How does registering your business in Delaware {sic} or Nevada help, if any? It s fairly common to see businesses domiciled in Nevada and Delaware for legal purposes. Generally these states provide additional liability protection due to stricter charging order laws. Most business owners select their business entity and place of domicile based on their attorney s advice for the best legal protection. However, each different type of entity also receives different tax treatment. Depending on an individual s unique circumstances, it s best to have your attorney and your tax planner working together to make sure you have the best liability protection with the most tax benefits. I have a home office... Can I take all of my internet bill or a % for bus and % for personal not deductable? You are correct in stating that personal expenses are not considered deductible. But if you are using your home internet to conduct business, you may deduct the business use percentage of the amount paid. You may use any method considered reasonable to determine your business use percentage of this expense. For example, you may wish to calculate your business use percentage based upon number of hours per use each year. You may also choose to calculate your business use percentage using your home office business use percentage rate. Whichever method you choose, be sure to document both how you calculate the deduction as well as why your method is considered reasonable. I don't understand the "big concept" of how home depreciation {sic} works. In general, depreciation is the method by which you deduct assets used in a business. The cost of the asset is deducted over the life of the asset. Both the allowable lives as well as the percentage of the deduction each year is determined by the type of the asset. Allowable methods and useful lives can be found in the Internal Revenue Code. Nonresidential property has a depreciable life of 39 years. To calculate the portion of your home purchase that can be

4 deducted as a business expense, take the basis in your home (generally the cost plus any improvements), divide by 39 years and multiply against the business use percentage of your home. Can you touch on whether ergonomic office furniture like sit-stand desks or specialty chairs can be deductible expenses? What are the general rules? Ergonomic furniture as you ve listed above can be deducted as long as it is used for your business. Regarding IRAs, what about SEP IRAs? SEP IRAs can be a wonderful way to defer tax by making contributions to your retirement account. Generally, a self employed individual can deduct the lower of 25% of their self employment income or $50,000. Since retirement accounts are tax-deferred, your tax rate is determined at the time you withdraw your money. Potentially, this means that at the time of withdrawal, you could be in a higher tax bracket than you were at the time you put money into your account. Be sure you are planning appropriately and not trading in a low tax rate today( by foregoing the SEP IRA deduction) for a higher tax rate in the future (when you withdraw). For the OPEAF does this apply to sole proprietor or do you have to be registered as a corporation? The entity choice does not matter for this deduction. What is the formula for BUP again? You can use any method considered reasonable in calculating your business use percentage. (BUP) You can divide by the number of rooms if they re roughly equal, or calculate the exact percentage of square footage. I own a gym. Can I claim on premise athletic deduction as all my staff use the facility to stay fit? IRS Code Section 132 (j)(4) allows an employer to deduct the cost and maintenance of a gym or athletic facility located on the employer s premises. If the facility is operated by the employer, and substantially used by employer s employees, employees spouses, and employees dependents it qualifies as a tax deduction. Facilities would include swimming pool, tennis court, and fitness equipment. IRS Regulations adds a twist by indicating that athletic facilities need not be located on the employer s business premises in all cases. Here s an example to make this easier to understand. Mark the Geologist is the only employee of his S Corporation. Mark designates the pool area in his home as the athletic facility available to all S Corporation employees. Given proper documentation, Mark and his S Corporation meet the requirements of IRS Code Section 132 (j)(4). The pool maintenance costs would be deductible as business expenses to the S Corporation. Does the car need to be in the name of the business? Your vehicle does not need to be owned in the name of the business in order for you to deduct your costs related to business. For auto is that only for business use? I thought you can t claim auto deductions in Florida? True or false? Car and truck expenses for trips on behalf of your trade or business are a deductible business expense even if you live in Florida. What if you buy or lease the vehicle in the business name? There are many myths about how to make your vehicle 100% deductible. The truth is that you can deduct your vehicle, whether in your name or in the name of the business, but only to the extent that it is used for business. The IRS realizes that most taxpayers use their vehicles for both personal uses as well as business uses. Any personal use of your vehicle is not deductible regardless of whether the vehicle is titled in the name of the business or the taxpayer and, contrary to some myths even regardless of any specialty paint you may use to advertise your business.

5 I was told that as a landlord, I can't use a space as a home office because the properties are not really considered a business; is that so? It all depends on how you run your business and whether or not your real estate activities have a loss. Real estate rental is presumed as a passive activity under Internal Revenue Code (IRC) 469. This means that you cannot use your passive losses to offset ordinary income. When passive losses exceed passive gains, they are suspended until sufficient passive gains arise for future offset or the entire activity is disposed. So while you may record your expenses for your home office, if you have an overall loss in your real estate activities, your home office deduction may be suspended until you have future passive income. You say that the home office must have exclusive use. Does this mean that I cannot also use my home office for personal things? This is correct. The space must be sued regularly and exclusively for business. Is there a problem if I make business purchases through my personal credit card and make the payments from the corporate account? Comingling business and personal funds is generally discouraged as it can have negative consequences in your liability protection plan. Additionally, it is important to be able to adequately track and identify personal versus business expenses. The risk is that under examination you may have difficulty proving your expenses are really business related. Where to find a business tax planner? Referrals are a great way to find business advisors. Begin by asking friends, family, and especially mentors and respected colleagues for recommendations. Be sure to look for an advisor who holds a certification in tax planning. They say you shouldn't file taxes earlier than April 15th because of interest? Should you file closer to the date? It sounds like you may be referring to the due date of your tax liability. Generally financial planners will recommend that you not over-deposit tax payments or pay tax liabilities prior to the due date. This becomes easier to estimate when working according to an active tax plan. If my business is a second job (employee in parallel), is there any limitation to the home office expenses deduction? There can be a limitation based on your activity level in the business. If you experience losses in the business and you do not materially participate in the business (generally more than 500 hours per year), the losses will be considered passive losses and are generally not deductible against ordinary income. Rather these passive losses are suspended until you have future passive income or the activity is completely disposed. What are my tax concerns if I sell my home to my small business next year? There are many reasons you may NOT want to sell your primary residence to your small business. Primarily, once you no longer use the property as your primary residence, you lose your Section 121 exclusion (the right to exclude up to $250,000 of gain on the sale of your primary residence; $500,000 for joint filers). A different question you may ask yourself is what are you hoping to accomplish by selling your home to your small business? Chances are, there is a better way to accomplish your goal. Begin by meeting with a proactive tax planner who can estimate how much you may save from your ideas. We are LLC, but filing as S Corp. Is it a good practice? The answer is it depends. Each entity type has its own set of legal and tax advantages. Yet most business owners approach the decision of which business is right for them by consulting with an attorney. Their decision-making process, therefore, focuses on the legal benefits and can often miss valuable tax breaks available. The first thing to consider when you re trying to decide which type of business structure will work best for you, is to decide which one will be most beneficial to your tax plan. The bottom line question you should ask yourself

6 is, What pre-tax spending will your business structure provide you, and is this the area which will benefit you most? Look at your spending patterns. Where do you spend the most money? Does the business entity you are considering provide a tax advantage for this type of expense? At the end of the day, if you re serious about getting your business to succeed, and you want to make the most of your tax plan, you re going to need some help. Nobody can be an expert at everything, and the tax code is complicated. Enlisting the help of a tax planning specialist can also provide support for the IRS Hobby Loss criteria. Make sure you work with someone who not only has good knowledge of the tax code and filing requirements, but who will work with you proactively throughout the year to make sure you are taking advantage of every available break. If I have a business and am employed full or part time, will {I} need to pay self-employment taxes? Yes, income earned through self employment is subject to self employment tax even if you have income from other employment. How do I interview a local CPA for my specific needs? Make sure you work with someone who not only has good knowledge of the tax code and filing requirements, but who will work with you proactively throughout the year to make sure you are taking advantage of every available break. Do not limit yourself to working with someone face-to-face. Modern technology provides many opportunities to work with the RIGHT advisor, even if that person is across the country, instead of across the street. Lastly, be sure to identify a tax advisor with a certification in tax planning to make the most of every available break for you. I didn't catch what she said about paying extra over $200,000 for something. The Affordable Care Act imposes a new Unearned Income Medicare Contribution of 3.8% on investment income (interest, dividends, capital gains, rents, royalties, and annuities) for taxpayers with AGI over $200,000 ($250,000 for joint filers). Consider the effect of this tax carefully before you invest. If the LLC has a partner (even at 5% non-voting, do you then avoid the high SE tax? Income from a Partnership for partners who are passively involved in an LLC (owning 5% or less) is generally not subject to self employment tax. Can I use mileage tax deduction when I go to the office? Or can I just use it when I go out for marketing? Generally miles driven to your office are considered commuting miles which are personal in nature and are not deductible. Can an LLC switch to S-Corp at any time during the year? In order to be effective for the current tax year, the S election must be filed within the first two and one half months of the tax year. Can you file as an S-corp this year and be qualified for this for 2012? How does that work? Under certain circumstances this is possible, but can be unlikely. Unfortunately the best tax planning comes from proactively planning before the end of the year it simply isn t possible to change history. Should you prepare your taxes quarterly or yearly? When you are self-employed, you are required to make quarterly estimated tax payments to the IRS and possibly your state taxing authority. IN order to determine your minimum payments due before penalties and interest are assessed, it may be necessary to create an estimate of your tax liability for the year.

7 For S-corp vs. proprietorship, salary is less than income. Do you have access to the income? An S corporation is a special corporation that s taxed like a partnership. The corporation pays you a reasonable wage for the work you do. If there s any profit left over, it passes through to you, and you pay the tax on that income on your own return. So the S corporation splits the owner s income into two parts, wages and pass-through distributions. I recently got set up as an LLC... How difficult is it to switch and will it count for this tax year? An LLC is a very flexible entity in that you can elect to be treated as a corporation or a partnership for tax purposes. The due date for making an election to be treated as an S corporation is generally March 15 if you d like to be considered an S corporation for the entire year. In certain circumstances you can extend this deadline. However, if you make the election now, it would be effective for the remainder of the year. Employment Tax Comparison slide: what accounts for difference in "salary" v. "Income"? An S corporation is a special corporation that s taxed like a partnership. The corporation pays you a reasonable wage for the work you do. If there s any profit left over, it passes through to you, and you pay the tax on that income on your own return. So the S corporation splits the owner s income into two parts, wages and pass-through distributions. In the slide from the presentation, the plumber in the example received a reasonable salary for his work and the profit in the S corporation left over was distributed to him as well. Does LLC pay self-employment tax also? Possibly. It depends on how the LLC is taxed. Most LLCs are taxed as partnerships. Profits earned in a partnership are generally subject to self employment tax. I have an S-Corp but revenues have not been high enough for me to draw a salary. What are the tax implications? The number one audit risk for S corporations is salary and wages paid to officers of the corporation. The IRS operates under the assumption that no one works for free, so they expect to see officers of the corporation compensated for the work they do. Even if the business is losing money, you must pay yourself a reasonable amount for the work that you perform. If your S corporation is losing money, then your losses will be greater by the amount of the salary you have to pay yourself. Generally you can deduct this loss against the salary you report as income on your personal tax return. Is there a minimum age before we can hire our kids? According to tax court cases, the youngest approved age is age 7. My partner and I are incorporated as an S-corp, and just started business this last Feb 28 th. We do not yet have any revenue. Do we need to file taxes, and if not, would there be any benefit to filing to deduct startup expenses, etc.? Yes, if you have opened your S corporation, you now have a filing requirement. Business startup costs are the fixed and operating costs acquired before a business owner begins operations. Start-Up and Organizational Costs may include any amounts paid in anticipation of the activity actually becoming a business. Small business owners are able to deduct as much as $10,000 of their start-up costs in their first year of business. Note that the deduction limit is reduced by one dollar for every dollar that startup cost exceeds $60,000. Any start up cost over $10,000 can be written off over the next 180 months. Children up to what age? Does this apply to adult children who are still living at home? Yes. With employing family members, does it have to be first generation children (i.e. sons vs. grandsons)? No, as long as they are working in the business, there is no requirement that they must be related to you at all.

8 My wife and I are the sole "stockholders" in an S-corp. Our business been receiving loans from us to finance the business lately. Can I avoid payroll taxes by returning monies received as loans instead of paying salaries? Amounts paid to you from the business as repayment of debt are not subject to income or self employment tax. Does the "Family" employment option only work for minor children? No, it works for anyone who performs work for your business. Do you have to pay as a W9 employee? Or can it be 1099? When you hire your children to work in your business, you must actually pay them a wage and issue a W-2. Is there a maximum age on the family member? No. What is the tax rate for children on pay above $15,050? Currently, it can be as high as 39.6% depending on how much they earn. About secret #8, what is the cap for the child's age - does this include college students? No cap. It can be an effective strategy for college students who perform work for your business. you mentioned if you own more than 5% of an entity, you can deduct your child's reasonable wages. Does that 5% include ownership of a corporation or partnership? You can deduct your child s wages regardless of percentage of ownership so long as they are performing work for the business. What about having your elderly parents working with you? Yes. How about cord blood storage payments under medical reimbursement plan? This sounds like a deductible medical expense for your medical reimbursement plan. Can the medical deductions be used for children who work in the business? Yes. Is there a website we can go to and find a good tax coach? Yes! Visit The medical reimbursement account, is that like an FSA account? No, unlike FSA s funds are not predetermined, nor deposited in advance. RE: MERP - as a self-employed- where do you go for the written plan document etc? Using an advisor who is certified in tax planning can assist you with implementing your written MERP document. What's the minimum yearly income amount that convinces you to change from an LLC to an S Corp? You gave example of $80K. Is that the minimum to consider making a change? No, it really depends on your individual circumstances. The first thing to consider when you re trying to decide which type of business structure will work best for you, is to decide which one will be most beneficial to your tax plan. The bottom line question you should ask yourself is, What pre-tax spending will your business structure provide you, and is this the area which will benefit you most? Look at your spending patterns. Where do you spend the most money? Does the business entity you are considering provide a tax advantage for this type of expense? Do the medical reimbursements qualify if you are using your spouse s insurance? Or do you have to have this insurance under your business? A Medical Expense Reimbursement Plan is not considered a deductible expense for self employed individuals. Owners of sole proprietorships are considered to be self employed. It may make

9 sense instead, to hire your spouse and implement a MERP for your spouse and their family (which includes you). The insurance plan is not required to be in the name of the business. Can you hire non-spouse (say live-in girlfriend) in order to set up a MERP 105? Yes. if the spouse is working and paying insurance though their employee, can the s-corp reimburse for the insurance premiums? No. Unfortunately, owners of S corporations and their spouses are considered self employed. Fringe benefits such as medical insurance premiums are not considered deductible by the corporation. However, if your spouse is working and having insurance premiums withheld by their employer, most likely this is not taxed. Re: medical reimbursement plan - does that work with a sole proprietorship? If you have other employees, do you not have to cover all of them as well as your wife? Because a MERP is an employee benefit plan, it has to be offered to a bona fide employee. There are a few things to keep in mind when determining if a medical reimbursement plan will work for you. Nondiscrimination the plan must cover all eligible employees, however, you can exclude employees who: b. are under the age of 25 c. work less than 35 hours a week d. are seasonal or work less than 9 months a year e. have less than 3 years of service If you are a partnership can you both hire your spouses? Yes, if your spouse is performing work for the partnership, you can hire your spouse. How does the medical expense reimbursement plan interface with a high deductable plan with HSA? All medical expenses are paid from the HSA. A MERP would disqualify any reimbursements from an HSA. What if you did not have income for that year can you still deduct your medical premiums up to what amount? Yes, if you actively participated in the business. Is there any situation where a sole proprietorship is more beneficial than an S-corp for tax purposes? I inherited a small seasonal income tax business and my wages aren t anywhere near the $40,000 example used. It can be. It really depends on your individual circumstances. The first thing to consider when you re trying to decide which type of business structure will work best for you, is to decide which one will be most beneficial to your tax plan. The bottom line question you should ask yourself is, What pre-tax spending will your business structure provide you, and is this the area which will benefit you most? Look at your spending patterns. Where do you spend the most money? Does the business entity you are considering provide a tax advantage for this type of expense? My name is Jennifer. Could you reiterate on Single LLC vs. S-Corporation entity? I am just start a new e- commerce business. I am a government worker, so I am a target person that needs to have a correct entity. Single Member LLCs are what is known as a disregarded entity. For tax purposes, the activity from your single member LLC would be reported on your Schedule C on the Typically schedule C s have a higher rate of audit than S corporations. If I hire my daughter, can college expenses be written off as well? Potentially. You may qualify for an Education Assistance Plan which allows you to deduct higher education costs for employees.

10 I have a new business - opened just one month. What are the strategies dealing with cash as revenue? We get mostly credit cards and checks, but take in a bit of cash as well. I want to have a tax strategy for our cash revenue. All revenue must be reported regardless of how it is received (cash, check or credit card). Even goods received in exchange for services (sometimes known as bartering) should be reported. Where can I verify the actual expense for using my 4wd/SUV being 75.7 as shown? You may wish to satisfy your curiosity by looking at several studies available online. Regardless of what the studies show, you are still limited to deducting just 56 cents per mile or the actual expenses. These studies do not provide support for deducting the cost suggested in the studies. How do you suggest finding a good tax planner in my area who has experience in my industry? Referrals are a great way to find business advisors. Begin by asking friends, family, and especially mentors and respected colleagues for recommendations. Be sure to look for an advisor who holds a certification in tax planning. We have a landscaping company - can we deduct anything for the use of part of our outside property to store things like debris or plants that will be used for landscaping? We also use the driveway to park all our vehicles. If you utilize a structure that is not attached to your home or residence, you may qualify to deduct expenses attributable to it. If your outdoor spaces are used in direct association with your business, be sure it is not also used for personal purposes. You cannot deduct expenses for the business use of your home if the designated area is used for both business and personal reasons. If you ever file an amended return, will the IRS ever write you a refund check and will it trigger an audit immediately or later? Yes, it is possible to amend prior returns and obtain refunds. When you work with an advisor certified in tax planning, they can identify mistakes and missed opportunities and help you identify potential refunds. In some cases it can increase your risk of audit. This can also be discussed with your tax planner. My wife and I have a business and are both members of our business which is an LLC. We both have insurance through her employer can we claim the premium paid? It depends on how it is paid through the employer. Most employees who participate in Employer Sponsored plans pay premiums through payroll withholdings which are deducted pretax. Since this income was never taxed, you cannot deduct it; Great information! I'm a new business owner. Set up as SP now. How can I find a good coach/cpa? Referrals are a great way to find business advisors. Begin by asking friends, family, and especially mentors and respected colleagues for recommendations. Be sure to look for an advisor who holds a certification in tax planning. Can the speaker provide some tips for finding/vetting a good tax specialist? Referrals are a great way to find business advisors. Begin by asking friends, family, and especially mentors and respected colleagues for recommendations. Be sure to look for an advisor who holds a certification in tax planning. Do you have an opinion on setting up a Solo 401(k) plan as a sole business owner? Since retirement accounts are tax-deferred, your tax rate is determined at the time you withdraw your money. Potentially, this means that at the time of withdrawal, you could be in a higher tax bracket than you were at the time you put money into your account. Be sure you are planning appropriately and not trading in a low tax rate today (by foregoing the 401k deduction) for a higher tax rate in the future (when you withdraw). Will the CPA know about Tax Credit Increase? I recommend looking for a tax advisor who is certified in tax planning they have received specialized training in tax credits.

11 What about taxes on estate distributions to children when a parent passes away? Estate taxes are different then planning for income taxes. There are many different strategies for planning to reduce future taxes when a parent passes away. I strongly recommend working with a proactive planner to ensure your heirs are not stuck wasting money on taxes that could have been avoided. I have a startup business medical practice management from home office, so how would I report my deductions for 2012? Unless you have created a formal entity, most likely you need to report your income and expenses on Schedule C on your form What should I ask when looking to hire a tax person? I'm currently on permanent disability and I opened a small business trying to get in the workforce and I feel like I'm in a unique position. Referrals are a great way to find business advisors. Begin by asking friends, family, and especially mentors and respected colleagues for recommendations. Be sure to look for an advisor who holds a certification in tax planning. How much does it generally cost to consult/engage with a certified tax planner? It really depends on your personal circumstances and complexity of the plan. The great thing about tax planning is that you can save more through your plan than it costs you to develop. It s one of the few areas in business you can see a return on your investment of professional fees! Your tax planner should be able to tell you within your first meeting an estimate of the cost as well as the potential tax savings so you can decide of the benefit outweighs the cost. Can one take percentage of cellphone expenses instead of actual phones calls made for business? Yes. You can use any reasonable method to estimate your business use of cell phone. For example you may consider examining your bills for a typical quarter and multiply this figure by 4 to estimate your annual business use percentage. I purchased a set of golf clubs and golf shoes that I only use for work related golfing outings. Can I deduct those? This is difficult to prove that these items are ordinary and necessary for your business under Internal Revenue Code. You can, however, deduct your golfing expenses for tee times and refreshments while you are conducting bona fide business. Warren Buffet pays fewer taxes because the "income" is from dividends! Stop the class warfare with the truth! You are correct. Mr. Buffet has been a longtime advocate for transparency in our tax structure. What s great about tax planning is regardless of how much you make, when you are in control of your earnings through business ownership, you can use the same strategies used by the very wealthy to reduce your tax. I heard that s corps paid the highest effective rate for taxes?? It s hard to tell out of context, but in my experience, a C corporation with high profits tends to be an expensive structure in terms of tax. However, properly used, C corporations can be a very effective tax strategy. Credits related affordable care act are only valid if businesses offered healthcare benefits, right? For qualifying small employers, businesses who employ less than 50 full time employees with less than $50,000 in average full time wages and who pays 50% or more of health insurance premiums, can qualify for a tax credit of up to 40% of the total premiums paid. There are some additional complexities, but the Government Accountability Office estimates over 3 million taxpayers were qualified and did not claim this valuable credit. Do you recommend going with a tax planner that is located in your same state/city? Is that better than someone outside your state? Make sure you work with someone who not only has good knowledge of the tax

12 code and state filing requirements, but who will work with you proactively throughout the year to make sure you are taking advantage of every available break. Do not limit yourself to working with someone face-to-face. Modern technology provides many opportunities to work with the RIGHT advisor, even if that person is across the country, instead of across the street. Lastly, be sure to identify a tax advisor with a certification in tax planning to make the most of every available break for you. If you rent? Can you talk a tax break for home office? Yes, as long as you meet the business use requirements. Do Certified Tax Coaches charge by the hour or is it a one-time fee? Certified Tax Coaches charge by the engagement. Your tax planner should be able to tell you within your first meeting an estimate of the cost as well as the potential tax savings so you can decide of the benefit outweighs the cost. What kind of fees can I expect to pay for a certified tax coach to review and advise on tax planning? It really depends on your personal circumstances and complexity of the plan. The great thing about tax planning is that you can save more through your plan than it costs you to develop. It s one of the few areas in business you can see a return on your investment of professional fees! Your tax planner should be able to tell you within your first meeting an estimate of the cost as well as the potential tax savings so you can decide of the benefit outweighs the cost. I saw on your screen "Innocent Spouse Rules" and would like to know about that please. Under the innocent spouse rules, one spouse can file for protection from claims against tax liabilities of their spouse. Is life insurance premium deductible? We do have "key personnel" policies... The bad news is life insurance premiums are a nondeductible expense. The good news is that benefits paid from a life insurance policy are non taxable income. Can a tax strategist help me determine if I should be using employees vs. subcontractors? Yes, and this can be a particularly tricky area that is heavily being examined by taxing authorities. Do you need a Tax Planner and a Financial Planner! If you use two separate advisors, the best advice is make sure they are communicating. Most tax and financial planning decisions impact one another. The more collaboration amongst your team of advisors, the better off you ll be. When you hire a family member are you required to provide work benefits Not necessarily, but it depends on your benefit plans. Does the MERP apply to S corp too? You can implement a MERP, however, unfortunately, owners of S corporations and their spouses are considered self employed. Fringe benefits such as MERPs are not considered deductible by the corporation. We are out of town a lot for work. Why does my accountant only deduct 50% of the cost of food? Under the meals and entertainment rules, only 50% of your meals and entertainment expenses are deductible. Does having a home office increase your property taxes? It depends on the rules in your local area. How do you determine a reasonable wage for a child? Is it hourly or monthly...? Look for resources to establish comparable pay rates. This may include looking at what you might pay a third party consultant to perform the same function in your business. Be sure to discount the wage for age and experience level.

13 If I hired a family member, how can I deduct their education expense? You may examine what s known as an Education Assistance Plan. Under the right circumstances, this may be a business deduction. How business meal expense is be deducted? Under the meals and entertainment rules, only 50% of your meals and entertainment expenses are deductible. What is the best way to track miles. Do you use an excel file? There are some pretty great apps available now for smart phones that will keep track automatically of your business miles. How can you deduct a home office if you have your mortgage paid off? There are two types of expenses related to a home office: 1. Direct Expenses Expenses related exclusively to the business are fully deductible. These can include things like, business insurance, general repairs, improvements, service or maintenance to facilitate business operations. Example: Furnishing the home office. 2. Indirect Expenses The percentage of general home expenses attributed to the operations of the business, otherwise known as the Business Use Percentage. Example; the portion of the electricity bill attributed to the business. BUP (Business Use Percentage) = Square footage of office/total finished square footage of home or apartment. If your business is 20% of your home you can deduct 20% of your home bills! Indirect expenses can include the following: a. Mortgage Interest b. Real Estate taxes c. Depreciation d. Rent e. Utilities (Gas, electric, water, and sewer) f. Insurance (Homeowner s) I will be opening a childcare business in my home. Do I deduct the number of hours used for daycare only? There are special rules for daycare providers when calculating your home office deduction. For one thing, you do not need to meet the exclusive use test. If you care for children in your home, you can use that part of the house for personal activities during your off time and still qualify for the deduction. To qualify, you must meet state and local licensing requirements. Home office of S-CORP...how does this get reported if not reporting on form 8829 Under an S corporation, you would need an accountable plan in order for this expense to be deductible and reimbursements nontaxable to the shareholder. I have a home office but don't claim it can i still use the mileage deduction from home. As long as your home office is considered your primary place of business. You may consider reporting your home office to further support your claim. Where can I get more information about switching from a Sole Prop to an S Corp? I suggest working with an advisor who is certified in tax planning. They will be able to tell you which entity provides the best tax advantages for your business. Can a married couple claim more than one home office if each partner has his/her own business? If each uses a separately identifiable area regularly and exclusively for business.

14 If I have contracted myself out to a company can I count the miles from home to the worksite? As long as your home office is considered your primary place of business. It is possible that the company you contract with can be considered your primary place of business so be sure to follow the rules. If I employ my step-daughter - can I then pay her child support from her account where I deposit her income? Under custodial account rules, funds drawn from a custodial fund cannot be used for shelter, food or clothing. When determining percentage of business use of your home office, is that in relation to percentage? Generally you would take the square footage of the office space divided by the total square footage of the home. When hiring a child or spouse - does it negatively impact personal tax deductions (e.g. child credits)? No. When you can reimburse your spouse for medical, if I do not have a spouse can I use that for other relatives or 'employee'? You may want to consider a C corporation where you can deduct your personal medical expenses. Can I have my aunt as an employee under family employment? Yes if she performs work for your business. When you hire your children is going to be as employee or independent contractor? Your child would be an employee. If I own our business's building in a separate LLC can I do the administrative work in a home office and then deduct the mileage for driving to the building. If it is substantially all of the administrative and these duties are performed exclusively at the home office. Does having a home office mean I have to claim that on my taxes as well or can I have a "home office" that I can't claim (i.e. no dedicated space)? If you do not have a dedicated space used regularly and exclusively for business, you would not qualify for the deduction. When you are a real estate investor what is the best form of business entity should you set up? It really depends on your individual circumstances. The first thing to consider when you re trying to decide which type of business structure will work best for you, is to decide which one will be most beneficial to your tax plan. The bottom line question you should ask yourself is, What pre-tax spending will your business structure provide you, and is this the area which will benefit you most? Look at your spending patterns. Where do you spend the most money? Does the business entity you are considering provide a tax advantage for this type of expense? Does every dollar of the child's reasonable wage have to be documented and pass through their personal account? Yes. Do those family employees need to be W9 employees? Or can they be 1099's? They would be employees. Was that family employment only for children, or could i use that $6100 tax free amount with my wife? You are most likely filing a joint return, so your wife is in your same tax bracket and the strategy would not result in tax savings. What requires an actual receipt? What can I claim if I didn't keep my receipts? You can use estimates and the IRS per diem rates for expenses paid while traveling.

15 How many years do you have to keep all the receipts of expenses? In general it is best to keep everything for at least 5 years. Can certification expenses and schooling be deducted? It depends on whether or not these expenses qualify you for a new skill. If they qualify you for a new skill these expenses are non-deductible. If these expenses are considered ordinary and necessary for your business, they would be deductible I have a business location and I do a lot of work from home. I have not set up a Home office yet. Is it too late at this time of the year to set up the home office and gain benefit from this option for this year's taxes? You may be eligible to deduct a prorata share of your home office expense based on the date you begin use. What is the difference in startup cost for an LLC and S-Corp? The cost depends on where the entity is opened (which state) and the cost of attorney s fees. Would travel for looking for personal housing in the new business location area count as business travel expense? If you are relocating more than 50 miles from your current place of business or if your home office is your primary place of business you may be eligible to deduct these costs as a business expense. what about gas deduction, can you deduct that? Yes if you claim the actual auto expense method. I haven't started up my business yet but am in the works of getting my business going. What started off as a hobby is now becoming a business but the supplies purchased go back 2 years. Can I deduct all that was purchased considering it was 2 years ago, does that still qualify as a start up fee that I can write off on my taxes because it is thousands of dollars invested? You can deduct up to $5,000 of your business start-up costs in the year you started the business even when these expenses are paid or incurred before the day the business opens. These are costs in connection with investigating the creation or acquisition of an active trade or business. Costs over $5,000 are then amortized over 180 months starting with the month the business begins. My employees use our bathroom and kitchen sink - to wash hands, etc. Can I deduct anything for that? If this space was used exclusively for business. As an LLC can I deduct my gym membership? You can deduct the cost of a gym or athletic facility located on your premises, operated by you, and substantially all the use of which is by your employees, their spouses, and their dependents. Facilities include your swimming pool, tennis court, and fitness equipment. Any idea on the fees for tax consulting is it ongoing or per consultation? It really depends on your personal circumstances and complexity of the plan. The great thing about tax planning is that you can save more through your plan than it costs you to develop. It s one of the few areas in business you can see a return on your investment of professional fees! Your tax planner should be able to tell you within your first meeting an estimate of the cost as well as the potential tax savings so you can decide of the benefit outweighs the cost. I haven't gotten my LLC yet but am spending for my business - do I have to wait to get my LLC to get my deductions? No, you can begin deducting as soon as you start operating in a business-like manner. The key is to prove that you started the business with the intent to make a profit. You don t need to expect it but you do need to intend it. An S-Corp is better than a new person LLC because of the self-employment tax on a LLC...correct? The answer is it depends. Each entity type, has its own set of legal and tax advantages. Yet most business owners approach

16 the decision of which business is right for them by consulting with an attorney. Their decision-making process, therefore, focuses on the legal benefits and can often miss valuable tax breaks available. The first thing to consider when you re trying to decide which type of business structure will work best for you, is to decide which one will be most beneficial to your tax plan. The bottom line question you should ask yourself is, What pre-tax spending will your business structure provide you, and is this the area which will benefit you most? Look at your spending patterns. Where do you spend the most money? Does the business entity you are considering provide a tax advantage for this type of expense? At the end of the day, if you re serious about getting your business to succeed, and you want to make the most of your tax plan, you re going to need some help. Nobody can be an expert at everything, and the tax code is complicated. Enlisting the help of a tax planning specialist can also provide support for the IRS Hobby Loss criteria. Make sure you work with someone who not only has good knowledge of the tax code and filing requirements, but who will work with you proactively throughout the year to make sure you are taking advantage of every available break. If setting up gym from scratch, are the building, decorating, stocking costs deductible as a biz expense? Yes as long as it meets the requirements under Code Section 132(j)() Does a MERP have to be setup in advance of the upcoming tax year? Yes is this employee medical deduction qualify when one employs their kids? Yes Can we deduct health insurance premium on an one person S-Corp? Sorry, A one person LLC versus an S Corp? Single-member LLCs are disregarded for federal and most state taxes, unless you elect to be taxed as a corporation. You ll generally file Schedule C or Schedule E. Unfortunately, since you are considered self employed in this scenario, you are not eligible to deduct your medical premiums as a business expense, you can however deduct this on page 1 of your form Can the MERP be used by sole proprietor or just employees? If you run your business. As a proprietorship, partnership, LLC, or S corporation, you're considered self-employed, and not eligible Can we write off over the counter medications with the Medical benefit plan? Yes, if prescribed by a physician. Can you deduct equipment bought for new business and building cost? (I built a commercial kitchen.) Yes. With the Medical Expense reimbursement plan, does it need to be offered to both full time and part time employees? Or can it be just a full time benefit? You can t discriminate in favor of highly compensated employees. However, you can use a classification test (such as all participants in Employer s group health plan ) to qualify participants. You can also exclude those under age 25; those who regularly work less than 35 hours per week; those who work less than nine months out of the year; and those who have worked for you for less than three years. If I dormer my home and use it as a business, does that hurt me if I am an S Corp and does that poke a hole in the liability clause where now I am going into my personal vs. business You should be sure and check with your attorney on issues related to liability protection.

17 Regarding the gym space deduction in your office, how about gym membership fees to an outside gym? Gym membership fees are generally not deductible as a business expense. However, you may be able to deduct these as a medical expense. The Internal Revenue Code specifically disallows health club dues as a medical expense if they are paid to improve one s general health. But several IRS revenue rulings confirm that if a doctor prescribes work outs at the gym to treat a specific medical condition (obesity is not one of them) the due may be deductible. If we have an international Business our headquarters is in Mexico but we started with an American company can you help us to know all the benefits we can get? The important thing to remember is that since you have a US business, you are subject to US tax even if you do not reside in the United States. This also entitles you to the hundreds of tax strategies available to small business owners. Be sure to build a strategic tax plan to make sure you are keeping more of what you earn.