When you think about estate planning, the professional who comes to mind is an attorney. But, as part of tax return preparation, we CPAs at Sapurstein & Associates are often called upon for help by both clients and their lawyers.

There are many incorrect ideas, we’ve found, about just which long-term care expenses can be deducted and which cannot.  The best person to help you figure out how to comply with the latest IRS regulations is an qualified CPA.

As a general starting checklist, here are some rules that determine which medical care expenses qualify as deductions for long-term care:

• Under new 2012 US tax law, expenses for medical care may be claimed as an itemized deduction IF they exceed 10 percent (up from 7.5% last year) of your adjusted gross income.

• In order for any expense to qualify as “long-term care” expense. A doctor must have determined that you are –or your spouse is– ‘chronically ill.’

• “Chronically ill’ means you “need help with activities like eating, going to the bathroom, bathing, dressing.” It can also include “requiring substantial supervision due to a severe cognitive impairment.”

• Payments to qualified caregivers for assisting and supervising the chronically ill qualify as deductible long-term care expenses.

For most people, paying for long-term care represents a devastating financial hit. That’s why, at Sapurstein & Associates, our CPAs, who are federally authorized tax practitioners continually study the new IRS regulations and make every effort to soften the blow.

You might say we take extra care with our clients’ long-term care.

The CPAs at Sapurstein & Associates have been blogging about owner-employees S corporations’ health insurance and 125 cafeteria plans. There are strict guidelines to follow and it is important to understand owner-employee health insurance and 125 cafeteria plans thoroughly so you don’t get tangled up in claiming tax or insurance deductions that run counter to federal regulations.

An owner-employee is a employee who owns 2% or more of the “S” corporation’s stock on any day of the year. Through attribution rules, a child, grandchild, wife or parent of the actual owner of the stock are also considered 2% owners of the S corporation.

As surprising as this may seem, Section 318 of the IRS tax code treats employed children, grandchildren or parents of the actual stockholders AS IF they themselves owned the stock. With this in mind, an adult employee of an S corporation owned by his/her grandparents is treated “as if” they own their grandparents’ stock. They are therefore treated as “owner-employees” of the S corporation and are subject to the IRS rules.

Looking at insurance, it’s important to know that health insurance premiums paid by S corporations on behalf of owner-employees must be reported on the owner-employee’s W-2 form each year. The S corporation usually deducts insurance premiums as “officer’s compensation” (which could help with your “reasonable compensation” tax position) and the owner-employee then writes-off the premium on their 1040 personal income tax return.

However, S corporation owner-employees AND their employed children, grandchildren (and even their parents) can not participate in the S corporation’s pre-tax Section 125 plan. Participation by an owner-employee can result in a termination of the plan’s tax benefits for the non-family member employees.

For these reasons, the CPAs at Sapurstein & Associates recommend that all S corporations establish general ledger expense accounts separate out owner benefits from non-owner benefits. Owner benefits would then be added to the owner’s W-2 and become an expense of the business as salary expense. The health insurance portion of the benefits is a front page deduction on the owner’s form 1040.

Got a question related to S corps? Give Barry or Leanne, CPAS at Sapurstein & Associates a call. Your first hour’s consultation is free!

If you are an “owner-employee” (employee who owns 2% or more of the S Corporation stock on any day of the year) or an owner or partner of an S corporation, you are in good company these days. As small-to-medium size business tax and accounting specialists, the CPAs at Sapurstein & Assoc. work with a great many owner-employees. The numbers of owner-employee companies are on the rise.

Most S Corporation business owner/managers are aware that “owner-employees” have special tax laws/rules in place regarding their health insurance premiums AND their participation in the S corporation’s Section 125 “cafeteria” plan.

There are, however, two very important owner-employee rules to follow. Do you know what they are?

Owner-Employee Rule #1: Owner/employees can NOT PARTICIPATE in the company’s Section 125 “cafeteria” plan. They cannot pay for neither insurance premiums, flexible spending accounts for medical or childcare expenses, HSAs and other like-minded programs through a pre-tax payroll withholding.

Owner-Employee Rule #2: The S Corporation 2% owner can deduct his/her health insurance premium on page 1 of his/her form 1040 as an adjustment to gross income. The health insurance premiums are added to the owner’s wages, however they are not subject to social security or Medicare tax.

There are many benefits of being an owner-employee of an S corp, as long as you play by tax rules. Having an expert guide you – especially when it comes to all things financial – can be a huge relief.

If you have any hesitations or concerns about your health insurance, tax or accounting needs, the CPAs at Sapurstein can help.

At one time or another, many of us will be caring long-term for a parent or a spouse. But what if we need to work full time and hire out help? For example, does the cost of a caregiver for a dementia patient qualify as a medical expense on your taxes?

Yes, says the IRS Tax Court. If the payments are for qualified long-term care services, and the family member was diagnosed with the disease, and the doctor determined that 24-hour supervision was needed.

What if the caregivers are not licensed health care providers? The Tax Court says the deductions still qualify, as the payments are medical expenses. In this particular example, the doctor certified that a mother’s dementia endangered her health because she otherwise would not take her medications, so her son could claim payments to healthcare providers as medical expenses.

Sapurstein and Associates has learned that the cost of maintenance and personal care services qualify as a medical expense for patients who are certified by a health care professional as being unable to care for themselves on a daily basis. The certifying professional can be a doctor, registered nurse or licensed social worker, and is required to approve the care program for the patient.

Contact Sapurstein & Associates before you have your taxes prepared. They keep up to date on the latest tax court rulings, which may have an impact on your tax return. Judy give Barry or Leanne a call at 317-706-0958.

With today’s uncertain economy, many work from home, own small businesses, or have side businesses. Are you trying to manage your business and personal financials by yourself?

It used to be easier to do yourself. But with recent semi-permanent exceptions to business regulations, and changes to IRS tax codes, it’s next to impossible to juggle all that information and stay on top of running your business.

Sapurstein & Associates CPAs are experienced and federally authorized tax practitioners and specialize in offering bookkeeping, accounting, and tax consultation and preparation services to small-to-medium size businesses. Hiring a professional CPA doesn’t have to be expensive and often pays for itself in tax savings.

How do you know if you could use some help? If you…

• purchased QuickBooks™ but need help setting it up correctly
• are way behind on your business bookkeeping
• have questions about new health insurance and business tax regulations for 2011
• your business is a Sub-S corporation and you do not know the applicable special tax rules

None of us can do it all. Ask for Barry or Leanne at Sapurstein & Associates to set up a consultation. The first hour is free  (317) 706-0958

Sapurstein & Associates has done some digging and we have some good news and bad news for senior citizens. Seniors who received the $250 Medicare rebate for being in the “donut hole” must reduce their total medical expenses by $250, so says the IRS.

Unfortunately, you read that right. Here’s some background: As part of the new health care law, seniors whose prescription drug costs for 2010 exceeded $2,830 received a $250 check from Medicare to help defray their costs. For tax purposes, this $250 payment is treated as a reimbursement of medical expenses, so it is subtracted from total medicals before application of the 7½%-of-AGI offset.

But there is a bit of good news. If you are a senior who received a K-1 and w-2 form from a Sub-S corporation, are a partner in a partnership or a self-employed individual who files Schedule C, you can deduct the Medicare Part B premiums in 2 places on form 1040, as a reduction of the Adjusted Gross Income which reduces taxable income and on form SE in order to reduce self-employment tax. According to newly issued 1040 instructions for 2010, Part B premiums count as an “above-the-line” deduction for health insurance.

That’s a surprising turn-around since 2009, when IRS instructions said that these premiums did not count. The IRS never officially announced that it was changing its position on premium deductibility – so be careful not to pay more than you need to this year.

Sapurstein & Associates understands IRS rules, whether stated, legislated or buried. We stay informed so you don’t get caught in red tape. If you have a question, chances are good that we have your answer.

Because recent IRS rulings effect the specific parties involved in these tax challenges AND current and future tax handling, Sapurstein & Associates stays on top of them.

Here are a few rulings or extensions of existing decisions that may impinge on you and your business:

Tax dispute mediation: The IRS has decided to extend the use of mediation as a lower cost means to resolve disputes over payroll tax deposits and taxpayers who offer to settle tax debts. IRS appeals officers will act as referees and the program will continue through December 31, 2012 in Indianapolis as well as Atlanta, Chicago, Cincinnati, Houston, Louisville, Phoenix and San Francisco.

Capital gains: The IRS continues to hold refund claims for sales of stock of demutualized insurers while waiting for an Arizona federal district court to issue a ruling. Two years ago, an Appeals Court rejected IRS’ position that the stock received had a zero basis. But the IRS is standing firm, trying to convince the court that its view is right. A final ruling is not expected soon. Those who filed refund claims with the IRS probably have at least a year before getting a final answer.

FSA benefit plans: The IRS has okayed the use of FSA (Flex plan or health reimbursement plan) debit cards for doctor-prescribed over-the-counter drugs. These debit cards can be used at drugstores, pharmacies, mail-order, and on line vendors. There is a restriction for use, however. Individuals must present a prescription for the OTC product to the pharmacist, securing a prescription number for the product.

Sapurstein & Associates stays informed, especially when it comes to small business and individual tax issues. How can we help you?

The Affordable Care Act (ACA) was enacted on March 23, 2010 and contains tax provisions that take effect in 2010 and over the next several years.

What tax laws are now in effect? Small Business Health Care Tax Credit is one, among several new provisions, that are now in effect and you need to be aware of.

The Small Business Health Care Tax Credit will help small businesses and small tax-exempt organizations afford the cost of health care for their employees. Specifically targeted at low and moderate-income employees, it is designed to encourage small businesses to offer health insurance coverage for the first time or to help them maintain the health care coverage they already have in place. The credit is available to small employers that pay at least half the costs of single coverage for their employees.

In 2011, the ACA requires employers to report the value of the health insurance coverage provided to their employees on each annual employee W-2 form. This is to help inform employees and is for informational purposes only, so it will not affect tax liability.

Sapurstein & Associates are CPA and accounting experts to small businesses and make it our business to understand new tax law. If you have a question about small business taxes, give Pat a call at 317-706-0958.

Seems like an odd request, until you truly understand how hugely important the tax consequences of each separate divorce decision may be to your bottom line.

If you and your attorney concentrate on the emotional and legal ramifications of your separation of assets, you may inadvertently put yourself – or your former partner – in an unfair or adverse tax situation. Who, after all, will be there to consider which payments come under the heading of “taxable events” and which will be classified as non-taxable?

The CPAs of Sapurstein & Associates appreciate the significance of effective financial planning and understand how Federal and Indiana tax law can affect divorce proceeding. They can make recommendations to a client before a final divorce agreement is signed that will take the tax ramifications of each potential decision into consideration.

A good example is child support. Child support, in and of itself, has no tax consequences. However, alimony or “marital support” as it’s known in Indiana, does. But how – precisely – are you and your attorney classifying payments between former spouses? Will health insurance be provided for the former spouse as well as dependent children? If so, is the payment split or shown as one amount? This one decision could have a major tax affect on both individuals.

Yes, CPAs have their place at the negotiating table. The results may surprise you next April if you didn’t think proactively about the decisions you and your attorney make during divorce negotiations.

Millions of Americans use CPAs and bookkeepers each year to do everything from preparing personal tax returns to business consulting to due diligence investigations. It’s highly probable that every person in the United States has been impacted through the work of a CPA – either directly or through their work.

There’s a very good reason Americans have turned to CPAs for help.  In today’s progressively complicated and cumbersome world, it is increasingly difficult to stay on top of what’s new, what’s pertinent, and what’s applicable to your situation.

When it comes to business owners (like you), it’s even more of a challenge staying on top of the multitude of changes. Employment law and health insurance are only two of the many areas in which complex reporting requirements have become a special burden for small businesses.

Sapurstein & Associates CPA firm is on top of all the changes, and we’re dedicated to understanding how those changes are going to impact your industry and your small-to-medium size business. We’re intent on finding out which strategies and tactics can effect change in your favor.

Whether you need tax preparation, remote access to QuickBooks™ data, a part time “CFO-to-Go” or ongoing business consulting, the CPAs at Sapurstein & Associates have decades of experience and expertise in a wide range of industries to offer.

That’s why Sapurstein & Associates is launching this new web site and blog -  as a way to share information and news that’s pertinent to you and your business. Look for news, tips, information, ideas, and support.

We welcome you and hope you will return often to learn about making your business world operate a little more smoothly, and a lot more efficiently!

- Lew of the Sapurstein Blog Team