If you could come up with your own tax related record, what would it be? Here is what popped into my head.

Design your own record.

Q:

Subject: COBRA Premium Deductions

 

Hi,

I’m an owner/employee of a c-corp (the only owner/employee), and I’m currently paying COBRA premiums to a previous employer for health insurance continuation.  I’d like to write this off as a fringe benefit from the c-corp to the employee (me).  I’m not sure if I can do this, I have researched ths HSA, and have found that I’d be able to use the HSA’s fed-tax-free funds to reimburse myself for COBRA premiums, but I’d rather not open the HSA, plus it’s capped at $5450 for the family in 2006.

Is there another way that the c-corp can reimburse me for the COBRA premiums w/o me being taxed on the personal side?  Also, I realize I can write off the COBRA premiums on the personal side subject to above the 7.5% of AGI garbage, but that’s peanuts.  If not, what a kick in the shorts, I’m unable to secure my own health insurance, or else I know I could write those premiums off, so the IRS adds insult to injury?  Hmmm, unable to get your own health insurance, and using COBRA?  IRS says:  Sorry, can’t deduct that, if you were healthy though…you could deduct normal health insurance premiums!!!

On another topic, I am using an income shifting technique between personal tax year-end and the c-corp tax year end.  And this helps me out quite a bit for this year due to the first year of incorporation and stretching it beyond my 12/31 personal tax year-end, but in what ways can I use the corporations $$$$ to pay me for services that will not be included as income to me?

Thanks.

A:

As I constantly warn, these are not the kinds of things you should be doing on your own.  You need to work with an experienced professional tax advisor for such matters as shifting income between fiscal years and shifting it between the corp and your 1040 with the lowest overall tax hit.  There are far too many variables to take into account for me to even suggest what would be the most appropriate for your unique situation.

In regard to the medical expenses, the answer is quite easy. When you draw up your corporate resolution establishing the medical benefit plan, include the fact that the COBRA premiums will be included as one of the covered types of costs. 

It would be best to then have the actual premium payments made with corporate checks so that no money goes into your personal account.  If that’s not possible for some reason, and you have to pay the premiums out of personal funds, you can have the corp reimburse you for it.  It will then be critical to properly document that the money was spent for that purpose.  My personal preference is to post the reimbursement to the same expense account in your personal QuickBooks file as the underlying payment was posted to so that it nets out.  However, some accountants prefer to post these in a different manner, so you need to coordinate this with your own personal professional tax advisor. 

Good luck.  I hope this helps.

Kerry Kerstetter

Follow-Up:

Thank you for the advice on the COBRA payments, and thanks for such a quick response.  I am working with an accountant at this time, but he mainly deals with s-corporations.  I was looking for a bit more color on some of the scenarios you presented here regarding income-shifting: http://taxguru.org/corps/scorp.htm , but I do understand your disclaimer regarding unique situations, etc.

Thanks again, your web site, and your blog are very insightful…BUT, of course not a substitute for the real deal, my very own tax professional 😉

The information you present, provides me with ideas and talking points when it comes time to meet with the professionals, so thanks again for your efforts.

My Reply:

That is a bit scary, to be working with a tax pro who is a one trick pony.  In this day and age, effective tax, asset protection and wealth management planning require a good understanding of the interplay between several kinds of entities, such as trusts, FLPs, LLCs, S corps and C corps, in addition to the standard 1040 Schedules C, E & F.  Any tax pro worth his/her salt needs to know those kinds of things or else it is impossible to provide decent service to clients.

If you haven’t already done so, you should check out my tips on how to select the right tax preparer for you. 

Good luck.

Kerry Kerstetter

 

Q:

Subject: Quickbooks question

Hi,

 

I found your email addresss on your webpage of Quickbooks tips, and have a question that maybe you can answer for me. 

I’ve just started a new job at a church, doing their daily bookkeeping.  They use Quickbooks, mainly only for checkbook and payroll.   There’s a report that they use for their monthly business meetings that they have set up in Excel, and I’m hoping to be able to set up or modify a Quickbooks report that will give them what they need instead.

  

Currently what happens is this: they print a payroll summary and a  P&L for the previous month, check the checkbook balance at previous month-end, and print the detail out of another account, then combine all of these (adding and subtracting accounts) into the Excel spreadsheet.  The main problem they seem to have with not just using the P&L from Quickbooks is that it separates out income and expenses, instead of just showing a current balance for each of those accounts. For example, contributions/re-imbursements come in during the month for mission trips, cds, church activities, etc., and then those have to be subtracted from the expense accounts for whatever particular fund was reimbursed to be shown on their report — the expense shown on the report reflects what was spent AFTER the re-imbursements to that account. 

I can’t find a report in Quickbooks that will show the funds in this way.  Any ideas?

 

Any help or suggestions would be greatly appreciated.

A:

Too many people take the unnecessary extra step of sending QB reports out to Excel to produce reports that can be prepared directly from within QB.

The odds of finding a preset report in QB that will fit your needs exactly are slim.  However, it shouldn’t take too much adjusting, filtering and fine-tuning of a basic transaction report to arrive at what you need.  Once you have it the way you need it, memorize the report and you can then fire it up with one click.

I don’t have to time to walk you through the fine-tuning steps you will need to design your report.  One thing you may want to take a look at is how reimbursements are posted into QB in order to give you the best info.  For example, you can produce different kinds of reports if the reimbursements are posted back into the original expense accounts versus having the reimbursements posted to their own separate income or contra-expense accounts.

I’m sure if you can get the church’s governing board members to specify exactly what they want to be able to see in a monthly report, you should be able to tweak the QB reports to get just what they need.

Good luck.

Kerry Kerstetter

 

From an attorney on the Left Coast:

Subject: Comment to July 11 post

 

Kerry,

 

I read your post from July 11.

 

As you probably also know, half of the population over the age of 85 has some form of dementia.

If the questioner takes mom’s money and buys a home in his or her name alone, without getting legal advice, there is a good chance that CA law will consider this elder abuse.

It is a crime and he or she may go to jail.

 

Not only does the questioner need competent tax counsel, but also legal advice to make sure that if this is really what mom wants, the child will not be challenged by the other children.

Otherwise, this is going to look very opertunistic and self-service on the part of the questioner, and may create many undesireable consequences.

 

I enjoy reading your blog, and think you do an excellent job of helping people understand the tax law.

Keep up the good work.

My Reply:

Those are very important points that anyone dealing with an issue such as that person was should address with the assistance of a good estate planning attorney.  As I constantly say in my speeches and seminars, Hollywood has yet to properly capture the real life insanity of heirs and wannabe heirs fighting over an estate, with everyone believing that they were short-changed out of their rightful share.

Your note also reinforces how important it is for people dealing with issues such as this to have a team of advisors, including individuals experienced with taxation and estate planning, to ensure that nothing crucial is overlooked when designing and setting up estate plans.

If you don’t mind, I would be glad to include your name and a link to your website when I post this to my blog.  However, I have noticed that many attorneys who write me prefer anonymity; so I can keep your name out if you prefer.

Thanks for writing and adding those important additional points.

Kerry Kerstetter

Follow-Up:

(Nothing yet.)