101 Ways to Celebrate the end of Tax Season……

According to Traci Wheeler at Red Moon Solutions.  Now the primary audience for these are tax practitioners rather than taxpayers, whether individual, small business or corporate. However, I think many apply to all of us. Here is a sampling:

Take a day off.

Go for a run or a ride on your bike.

Take a nap.

Take your department to lunch. (or alternatively go to lunch with a friend or co-worker)

Work in the garden/yard.

Go for a sunset stroll.

Go to a concert or play.

Go to a ball game. (the NBA is still in season, or if you are a baseball fan many minor league teams still have their home openers coming up.)

Go fishing.

Take a road trip.

Blow bubbles.

Play a round of golf.

For the complete list,  follow the link.


What do you want to do to Celebrate the end of tax season?

As for me, I will continue to run, got tickets to Man of LaMancha. Now what else can I do?


Health Reimbursement Arrangement or Account (HRA)

It has been much to long since my last post. My life has been pretty hectic lately. This is a post that I have wanted to put up for some time.

The last few months I have been doing some work with a company who among other things works with Fortune 500 companies and their retirees. One thing that many of these companies do is provide funds for those retirees to help them pay for their Medicare Supplement plans and other medical expenses through a Health Reimbursement Arrangement (HRA). This begs the question: what is a HRA?

A HRA (Health Reimbursement Arrangement also sometimes called a Health Reimbursement Account) is a tax qualified, employer established benefit plan that can be used as part of a company’s total health benefit package. This can be for current and former employees (typically retirees in my experience) alike.

The employer has a great deal of flexibility in plan design and offering various combinations of benefits. The employee/retiree does not have to be covered by any other health care plan to participate. (Although the employer can structure it to require certain types of benefits in order to qualify)

According to IRS Publication 969:

A health reimbursement arrangement (HRA) must be funded solely by an employer. The contribution cannot be paid through a voluntary salary reduction agreement on the part of an employee. Employees (or retirees) are reimbursed tax free for qualified medical expenses up to a maximum dollar amount for a coverage period. An HRA may be offered with other health plans, including FSA’s.

  • Unlike HSAs or Archer MSAs which must be reported on Form 1040 or Form 1040NR, there are no reporting requirements for HRAs on your income tax form.

What are some of the benefits of an HRA?

  • Contributions made by the employer can be excluded from gross income.
  • Reimbursements may be tax free if you pay qualified medical expenses.

Generally, qualified medical expenses are those that are eligible for the medical & dental expense deduction on Form 1040 Schedule A. They also include health insurance premiums, long term care coverage and amounts not covered under another health plan.

  • Any unused amounts in the HRA can be carried forward for reimbursements in later years.
  • CAUTION: You cannot claim a reimbursement from an HRA and deduct those same expenses on Schedule A.

 Contribution Limits:

There is no limit on the amount of money the employer can contribute to the accounts. Additionally, the maximum reimbursement amount credited under the HRA in the future may be increased or decreased by amounts not previously used.

Balances remaining in the HRA at the end of the year can generally be carried over to the next year. The employer is not permitted to refund any part of the balance to you. These amounts can never be used for anything but reimbursements for qualified medical expenses.

Distributions from an HRA:

Generally, distributions from an HRA must be paid to reimburse you for qualified medical expenses. The date the expense was incurred must be on or after the date of enrollment into the HRA. Plans can be structured in such a way as to be paid to a designated beneficiary. Some of those individuals include:

Current and former employees, spouses (including surviving spouses), dependents of those employees among others.

In order for a HRA to maintain tax-qualified status, employers must comply with certain requirements that apply to certain accident and health plans.  (See Publication 15-B)




Legal Entities – When and What Kind?

**Disclaimer: This is not to be construed as legal advice.

If you own a small business and run it as a sole proprietorship filing your taxes on a 1040 and a Schedule C, you may have at one time or another asked yourself if you should incorporate or otherwise change the business structure. Maybe it is because you need to hire one or more employees and want to manage growth, take out a business loan, any number of other factors. Perhaps you want to protect yourself from lawsuits or other liability. The question most sole proprietors have is – when and what kind. Do I form a LLC (Limited Liability Company), a Partnership, or a Corporation? What are the benefits and drawbacks of each form of entity?  A type of entity that might be right for one company might not be for another company even if that company sells the same product or service and has the same amount of revenue.

Sole Proprietorship – It is just you the owner. From a paperwork standpoint it is simpler. Taxes – just a Schedule C on the 1040 you already file. Fewer government regulations in most cases. Profits? They belong to you. But so do the negatives – things like lawsuits. All yours baby.  It is also the most common – especially in small one person businesses.

Partnership ­­­­- When two or more people join forces and pool resources, both having an ownership interest. There are multiple kinds of partnerships – general, limited, joint ventures and limited liability partnerships. If you are a sole proprietorship you are ruling this one out early unless you are bringing another owner on board. Even then until you look at your specific needs you won’t know if this is the structure for you.  From a tax perspective, you will file two returns – a 1065 partnership return (which is an information return only – all taxes are paid at the individual level) and your 1040 and Schedule C just like before you were a partnership.

Corporations – A corporation takes longer and is more expensive to set up, but has certain advantages over many other forms of legal entity. They are their own legal entity, completely separate from its owners and shareholders. There are four different types of corporations, but I will concentrate on the two most common. The C Corporation (regular or business) and S Corporation which has some of the advantages of a partnership or sole proprietorship, with advantages that regular or C Corporations have – Limited Liability. From a tax perspective, an S Corp is a flow through entity like a partnership or sole proprietorship. It can be taxed as a corporation or as a partnership. If your company is growing rapidly and you think you might want to issue stock through an IPO you may want to consider a C Corporation. But you will also have to have regular meetings of the Board of Directors and pay corporate taxes. (Form 1120 or 1120S)

Limited Liability Company (LLC) – A Limited Liability Company (LLC) is a kind of a hybrid type of entity that is designed to do what its name implies-limit owners liability. Rather than shareholders or stockholders, owners are called members. LLC’s are taxed much like an S Corporation. Owners get to choose to be taxed as a corporation or a partnership.  If you choose to file as a corporation you will file Form 1120 or 1120S, as a partnership a 1065 – assuming there are two or more members. If you are a Single Member LLC – you can choose to be a disregarded entity for tax purposes. What that means is you file a 1040 and a Schedule C.

There are other factors to consider as well of course. Management, Ownership Transition and Capitalization are some in addition to Personal Liability and Tax considerations.  Do your homework, then talk to your tax advisor and an attorney to help you determine what type of entity is going to be right for you and get the documents drawn up.

In terms of when, well that depends on you the owner. For some, choosing one of the above entities is something that you want to do before you open your doors. Others will wait until they are at least generating some revenue or hire the first employee. Others will wait even longer. There is no one size fits all right answer.