2023 Health Insurance for S Corporation Owners: An Update
Here’s an update on the latest developments in 2023 health insurance for S corporation owners. As a more-than-2-percent S corporation owner, you are entitled to some good news when it comes to your health insurance.
To ensure that your health insurance deductions are in order, and to avoid the $100-a-day penalties for violating the rules of the Affordable Care Act (ACA), you should take the following steps:
- Get the cost of the health insurance on the S corporation’s books, either by making the premium payments directly or through reimbursement.
- Ensure that the S corporation includes the health insurance premiums on the owner-employee’s W-2 form, including the additional compensation in box 1 but not in boxes 3 or 5.
- If you are an owner-employee with more than 2 percent ownership, claim the health insurance deduction as “self-employed health insurance” on line 17 of Schedule 1 of Form 1040. You must meet the two rules of not having access to employer-subsidized health insurance and having adequate salary.
For rank-and-file employees, the S corporation does not have to provide health insurance benefits, but if it does, it must use an acceptable ACA plan, such as (among others) the qualified small employer health reimbursement arrangement (QSEHRA) or the individual coverage HRA (ICHRA).
The S corporation can reimburse more-than-2-percent owners for individually purchased insurance without any penalties, but if it reimburses rank-and-file employees without using the QSEHRA or ICHRA, it faces the $100-a-day penalty per employee.
If you are looking to provide health benefits to employees through the S corporation, there are many tax-advantaged options available. If the S corporation provides group health insurance to all employees, including the shareholder-employee, the same rules apply.
SECURE 2.0 Act Creates New Tax Strategies for RMDs
As you are likely aware, if you have an IRA or other tax-deferred retirement account, you must start taking required minimum distributions (RMDs) once you reach a certain age.
The SECURE 2.0 Act raises the age at which RMDs must first be taken, from age 72 to age 75, over the next 10 years. Specifically, the RMD age will be 73 for those born between 1951 and 1959 and 75 for those born in 1960 or later.
The purpose of RMDs is to ensure that you use the funds in your retirement accounts while you are still alive, rather than using those accounts as an estate planning device to pass money to your heirs tax-free.
The amount you are required to withdraw as an RMD depends on your age and the balance of your retirement account as of December 31 of the previous year. RMDs are required for traditional IRAs; SEP-IRAs; SIMPLE IRAs; solo 401(k) plans; and all employer-sponsored tax-deferred retirement plans, including 401(k) plans, 403(b) plans, profit-sharing plans, and 457(b) plans.
Your first RMD must be taken by April 1 of the year following the year you reach the age of RMD. For example, if you turn 73 in 2024, you have until April 1, 2025, to take your first taxable RMD. And then, including in 2025 and every year thereafter, you must take an annual RMD on or before December 31.
It’s important to note that taking two RMDs in one year could increase your tax bracket and even your Medicare premiums. If you are faced with this situation, it’s best to take the first RMD in the year you reach the age of RMD.
In the past, the IRS imposed an “excess accumulation” penalty tax of 50 percent if you failed to take your full RMD by the deadline. But starting in 2023, the SECURE 2.0 Act reduces the penalty to 25 percent. If you correct the shortfall within the “correction window,” you can reduce the penalty to 10 percent. The correction window begins on January 1 of the year following the RMD shortfall and ends on the earlier of
- when the IRS mails a Notice of Deficiency,
- when the penalty is assessed, or
- the last day of the second tax year after the penalty is imposed.
If the shortfall was due to reasonable error and you took reasonable steps to remedy it, you may request a penalty waiver by filing IRS Form 5329 and a letter explaining the reasonable error. Before filing the waiver request, you should make a catch-up distribution from your retirement accounts to make up for the RMD shortfall.
Plan Your Passive Activity Losses for Tax-Deduction Relevance
In 1986, lawmakers drove a stake through the heart of your rental property tax deductions.
That stake, called the passive-loss rules, causes myriad complications that now, 37 years later, are still commonly misunderstood.
The Trap
In 1986, lawmakers made you shovel your taxable activities into three basic tax buckets. Looking at the buckets from a business perspective, you find the following:
- Portfolio bucket for your stocks and bonds
- Active business bucket for your material participation business activities
- Passive-loss bucket for your rentals plus other activities in which you do not materially participate
This letter explains three escapes from the passive-loss trap so that you can realize the tax benefits from your rental losses.
Escape 1: Get Out of Jail Free
Lawmakers allow taxpayers with a modified adjusted gross income of $100,000 or less to deduct up to $25,000 of rental property losses. Once your income goes above $100,000, the get-out-of-jail-free loss deduction drops by 50 cents on the dollar and disappears altogether at $150,000 of modified adjusted gross income.
Escape 2: Changes in Operations
If you, or you and your spouse, have modified adjusted gross income that exceeds the threshold, you need a different plan to obtain immediate benefit from your rental property tax losses.
To begin, let’s review how the tax-benefit dollars get trapped in the first place. As you may remember, to benefit from your rental property tax loss, you must either
- have passive income from other properties or another source, or
- both qualify as a real estate professional and materially participate in the rental property.
Example. Say the taxable income on your Form 1040 is $200,000 and you have one rental property. Say further that rental has produced a tax loss of $10,000 a year for the past six years, none of which you have been able to deduct because you have no other passive income and you do not qualify as a tax-law-defined real estate professional.
So here you sit: $60,000 in tax deductions trapped in the passive-loss bucket—not available for deduction against the income from the other buckets.
Not Lost, Just Waiting
This is sad, no doubt, but there’s some good news even in this bucket as you now see it. The $60,000 is not going to drown, disappear, or lose its tax-deduction attributes in some other way. That $60,000 simply waits in the bucket for you to give it an escape route.
Here are four possibilities for the escape route:
- Generate passive income.
- Change the character of the rental to non-passive.
- Change your status to that of a real estate professional, and pass the material participation test for this property.
- Sell the property, as explained in Escape 3 below.
Escape 3: Total Release
The $60,000 that’s trapped in the passive-loss bucket is like money in the bank. You can tap the trap when you want to release the deductions. It’s really quite easy.
Here we are talking about releasing the entire $60,000 at once (a major jailbreak). You might want to do this right now, or you can wait. You have many options, and the good news is that you are the one in charge of this total release of your passive losses.
To release the losses, you need to make a complete disposition. For example, say you sell 100 percent of the property to a third party. Presto! You now deduct the entire $60,000 in trapped passive losses.
Takeaway
The one thing to know is that if you have rental property losses that are trapped by the passive-loss rules, you have some strategies available.
Build Net Worth by Using Depreciable Antiques in Your Business
Building net worth through depreciable antiques in your business can be a complex process, but it generally involves investing in assets that can appreciate in value over time while also providing tax benefits through depreciation.
Depreciable antiques are assets that have historical or artistic value and are used in your business operations. These assets may include items such as artwork, vintage furniture, rare books, or other collectibles that can appreciate in value over time.
One way to build net worth through depreciable antiques is to acquire these assets at a reasonable cost and hold onto them for an extended period of time. As the assets appreciate in value, they can be sold for a profit, which can then be reinvested into your business or other investments.
In addition to their appreciation potential, depreciable antiques can also provide tax benefits through depreciation. This is a tax deduction that allows businesses to recover the cost of an asset over its useful life, reducing the amount of taxable income each year. Depreciation can be a powerful tool for reducing your tax liability and freeing up more capital to reinvest in your business.
However, it’s important to note that the value of depreciable antiques can be volatile and subject to market fluctuations. It’s important to research the market and seek professional advice before making any significant investments.
In summary, investing in depreciable antiques in your business can be a viable strategy for building net worth over time, but it’s important to approach it with caution and seek professional guidance to maximize the potential benefits while minimizing the risks.
Firstly, depreciable antiques can be a valuable addition to a business’s balance sheet. Unlike most other assets, depreciable antiques have the potential to appreciate over time. This means that if a business invests in a valuable antique or collectible, it could be worth significantly more in the future than it was at the time of purchase. This appreciation in value can help to increase the business’s net worth, which is the difference between its total assets and liabilities.
Secondly, depreciation can help to reduce a business’s taxable income, thereby reducing the amount of taxes owed. Depreciation is an accounting method that allows businesses to allocate the cost of an asset over its useful life, which is the period over which it will be used to generate income. Each year, a portion of the asset’s cost is “written off” as an expense, which reduces the business’s taxable income. This can result in a significant tax benefit over the life of the asset, which can help to free up more capital for investment.
However, it’s important to note that investing in depreciable antiques comes with risks as well. These assets can be volatile, and their value can fluctuate based on a variety of factors, including market trends and demand. Furthermore, not all antiques and collectibles appreciate over time, so it’s important to do thorough research and seek professional advice before making any significant investments.
In conclusion, investing in depreciable antiques can be a viable strategy for building net worth in a business, but it requires careful consideration and due diligence. By researching the market, seeking professional advice, and carefully managing the risks, a business can potentially benefit from the appreciation and tax benefits of these assets over time.
IRS Proposes Tax Deductions for Health Care Sharing Ministries
Health care sharing ministries are organizations where members share healthcare costs among themselves. Members pay a monthly fee or “share” to cover the medical costs of other members. These ministries are not insurance companies, but rather provide a way for like-minded individuals to share the cost of medical expenses.
In August 2022, the Internal Revenue Service (IRS) proposed tax deductions for health care sharing ministries. Under the proposed regulation, members of health care sharing ministries would be allowed to deduct their monthly share payments from their taxable income.
This proposal is a significant development for health care sharing ministries, as it would provide financial relief for members who are struggling to pay for their healthcare costs. It is also a recognition by the IRS that health care sharing ministries are a legitimate alternative to traditional health insurance.
However, it is important to note that the proposal is not yet finalized and could be subject to change. Additionally, it is important for individuals to carefully consider their healthcare needs before joining a health care sharing ministry, as they may not cover all medical expenses and have different requirements for eligibility and coverage.
As mentioned earlier, health care sharing ministries are organizations where members share healthcare costs among themselves. These ministries are typically organized around a shared set of religious or ethical beliefs and are not insurance companies. Instead of paying premiums to an insurance company, members pay a monthly fee or “share” into a pool that is used to cover the medical expenses of other members. Members are typically responsible for paying a portion of their own medical expenses, up to a certain amount, before the ministry starts sharing their costs.
The proposed regulation from the IRS would allow members of health care sharing ministries to deduct their monthly share payments from their taxable income. This means that the share payments would be treated similarly to health insurance premiums, which are typically deductible for tax purposes. This would provide a financial benefit to members of health care sharing ministries, making it more affordable for them to participate in these organizations.
However, it is important to note that the proposal is not yet finalized and could be subject to change. The proposal is open for public comment, and the IRS will review feedback before making a final decision.
Additionally, it is important for individuals to carefully consider their healthcare needs before joining a health care sharing ministry. While these ministries can provide a lower-cost alternative to traditional health insurance, they may not cover all medical expenses and typically have different requirements for eligibility and coverage. Members of health care sharing ministries are also not protected by the same regulations that govern traditional health insurance, so it is important to understand the risks and limitations of these organizations before joining.
Taxpayer Penalties-2023
Taxpayer penalties are charges imposed by the government on taxpayers who fail to comply with tax laws and regulations. These penalties can apply to a variety of actions, such as failing to file tax returns, filing inaccurate returns, underpaying taxes, and failing to make required tax payments.
The exact penalties that apply to a particular taxpayer depend on the specific circumstances of the noncompliance. For example, if a taxpayer fails to file a tax return on time, they may be subject to a penalty for failure to file. The penalty amount may be based on a percentage of the amount of tax owed and may increase over time if the taxpayer continues to delay filing.
It’s important to note that tax laws and regulations can vary by jurisdiction and can change over time, so it’s always a good idea to stay up to date on the latest tax rules and requirements to avoid incurring penalties. Additionally, taxpayers who are unsure about their tax obligations or who need help understanding their tax situation may wish to consult with a tax professional or seek guidance from the relevant government agency.
2023 Tax Resource Guide
A tax resource guide is a document or publication that provides information and guidance on various tax-related matters. It can be produced by the government, professional organizations, or private companies. The purpose of a tax resource guide is to help taxpayers understand their tax obligations and navigate the often complex and confusing world of taxes.
A typical tax resource guide may include information on tax laws, regulations, and procedures. It may also provide guidance on how to prepare and file tax returns, as well as tips for minimizing tax liability and maximizing tax benefits. Some tax resource guides may also include examples and case studies to help illustrate key concepts.
In general, a tax resource guide is a valuable tool for anyone who needs to deal with taxes, whether it’s an individual taxpayer or a business owner. It can help you stay up-to-date on the latest tax developments, avoid common tax pitfalls, and make informed decisions about your tax strategy.
Tractors, Antique or Not, Are Deductible
Tractors, whether they are antique or not, may be tax-deductible under certain circumstances. This depends on the context in which the tractor is being used and the laws in the relevant jurisdiction.
If the tractor is being used for business purposes, such as on a farm or other agricultural operation, the cost of the tractor and any associated maintenance and repair expenses may be deductible as business expenses. This could include the cost of fuel, insurance, and any other expenses directly related to the operation of the tractor.
In addition, if the tractor is being used for charitable purposes, such as in a community garden or for a non-profit organization, the cost of the tractor may be deductible as a charitable contribution.
However, if the tractor is being used solely for personal use or as a hobby, it would generally not be tax-deductible.
It’s important to note that tax laws and regulations can vary by jurisdiction and change over time, so it’s always a good idea to consult with a tax professional or accountant for specific advice on deductibility of tractors or other expenses.
The deductibility of tractors can depend on several factors, including the type of tractor, the intended use, and the tax laws in the relevant jurisdiction.
For example, in the United States, farmers may be able to deduct the cost of new and used tractors as well as other equipment under the Section 179 deduction of the IRS tax code. The Section 179 deduction allows businesses to deduct the full cost of qualifying equipment purchases up to a certain limit, rather than depreciating the cost over several years.
Antique tractors may also be deductible if they are used for business purposes, but the tax treatment may depend on the age and value of the tractor. In some cases, antique tractors may be considered collectibles rather than equipment and may have different tax implications.
It’s important to keep accurate records of all tractor-related expenses to ensure that any deductions claimed are accurate and supported by documentation. This can include receipts, invoices, and maintenance logs.
As always, it’s recommended to seek professional advice from a tax professional or accountant before claiming any deductions related to tractors or other business expenses.