Maybe your spouse helps out at your small corporation without pay. Although wages are taxable and fringe benefits cost your company, you could be missing out on tax-saving opportunities for hiring your spouse. Consider the following:
- You’re saving money in the company 401(k), but what about your spouse? If certain requirements are met, your spouse can contribute to the plan while the business deducts contributions made on his or her behalf. Frequently, your spouse can build a tidy nest egg within the tax law’s contribution limits.
- If you’re paying a hefty bill for your spouse’s health insurance coverage, hiring your spouse as an employee will likely save money.The amount of your company’s payment is deductible by the business — just like it is for any other employee — even if you’re self-employed.
- You typically can’t deduct your spouse’s travel expenses like you can for yourself if he or she is accompanying you on a business trip.However, if there’s a legitimate business reason for your spouse to make the trip, the travel expenses — such as airfare, hotels and 50 percent of the cost of meals — become deductible.
- Is your spouse planning to attend school to improve business skills?If he or she enrolls in courses through an educational assistance plan, the cost is generally deductible by your business. For the employee-spouse, annual benefits of up to $5,250 are exempt from tax.
- Does your business provide group-term life insurance coverage on a nondiscriminatory basis? Then you know the cost is deductible by the business and the first $50,000 of coverage is tax-free to employees. As a bona fide employee, your spouse can be covered under the plan.
There’s one catch: S corporation owners generally can’t deduct fringe benefits for any employee owning 2 percent or more of the company. This prohibition extends to coverage for an owner’s spouse. Carl Heinemann, your Chattanooga CPA, can help you determine when it makes sense to put your spouse on the payroll.
Suppose a relative wants to borrow money for a business venture or to buy a home. It’s true that family loans can raise problems. But if you’re going to do it, take the tax law into account. Otherwise, you could have an unexpected problem on your hands.
Here’s what to watch out for
It all has to do with “imputed interest” rules that may apply if you don’t charge the going rate of interest on the loan. Essentially, the IRS treats the loan as if interest were required, even if you’re not charging any interest, or you’re imposing an unusually low rate. Thus, the interest is “imputed” to you — the lender — based on IRS figures.
In other words, the IRS treats it like you’ve received taxable interest from the relative, even though you may not be getting a penny. Thus, you could be facing a tax bill that you probably weren’t counting on.
Fortunately, the tax law provides two exceptions to these “imputed interest” rules:
- If you lend your relative less than $10,000, you have no tax worries, unless the money is used to purchase income-producing property. You can charge no interest (or an extremely low interest rate) without any tax repercussions.
- If the money is a gift, you also don’t have to deal with interest. You and your spouse can each give up to $14,000 ($15,000 in 2018) to an individual each year.
There are additional complexities for some family loans, but those are the main tax rules to address. If possible, stay below the thresholds for either of the two exceptions. Alternatively, charge an interest rate and use a formal loan document resembling one found at a bank. Carl Heinemann, your Chattanooga CPA, can help you with the details.
Are you trying to sell investment or commercial real estate? If you use an installment sale to help sell real estate, you can benefit from tax deferral and possibly lower your overall tax bill. But watch out for a little-known tax trap.
Here’s what to know
Generally, installment sale treatment is automatic for a sale where you receive payments in the tax year of the sale and at least one other tax year. For instance, if you sell real estate in 2017 and receive payments in both 2017 and 2018, you qualify. Part of the tax due on your gain is taxable in 2017 and part is taxable in 2018.
Note that real estate held longer than one year qualifies for favorable treatment of the capital gains tax. The maximum tax rate on long-term capital gains is only 20 percent, compared with the top ordinary income tax bracket of 39.6 percent.
Why an installment sale may be worthwhile
With an installment sale, you may benefit from the lower tax rate in several years by spreading out payments over time. This reduces your overall tax liability.
Caution: If you sell property to a related party that is then disposed of within two years, all the remaining tax comes due (barring certain exceptions). The tax law definition of “related parties” is more expansive than you might think. It includes:
- A spouse
- A partnership or corporation in which you have a controlling interest
- An estate or trust you’re connected to
Avoid any dire tax results by stipulating in the contract that the property can’t be disposed of within two years.
Finally, be aware that installment sale treatment is only available for gains, not losses. Other special rules may apply, so give Carl Heinemann, your Chattanooga CPA, a call and we can take a look at your specific your situation.
Obtaining a legitimate college degree is an expensive proposition. According to a recent Edvisors education survey, the average college student graduates with $35,000 in student loan debt. And that’s not counting people who attend graduate school. Many will be paying off student loans — month after month, year after year — for decades.
The good news? With smart financial management, graduates can liquidate their college debt in a reasonable time, freeing up cash for other priorities. Here are four tips for paying off loans quickly and efficiently:
- Create a budget. Get a handle on where money is going. A budget can help prioritize, enabling you or your child to whittle down student loans more quickly. Several online tools are available. You can even use a simple spreadsheet listing monthly income and expenses.
- Ask your employer. Your company or your child’s company may offer one-time loan payoffs in exchange for a lower starting wage or other concessions. Negotiate when interviewing. After taking a job, check with the human resources department about options.
- Sign up for auto-deductions. Reducing payment steps makes it less likely to divert those funds to lesser priorities. As an added bonus, you or your child may develop the discipline to live on less while loans are being paid off.
- Reduce your other bills. Talk to your cell phone provider. Postpone that expensive vacation. Hold off on the latest-and-greatest electronics. Instead, prioritize student loan payments. It’ll be worth it when you or your child can enjoy the benefits of a rising salary, increased cash flow and a stellar credit score in a few years from now.
Don’t forget to take advantage of possible education tax credits and deductions. Give Carl Heinemann, your Chattanooga CPA, a call for help determining what tax breaks are right for you.
The internet is where people go to discuss their favorite sports teams, politicians, recipes — you name it. This is especially true for customers. You can find out how much people love or hate your business by what you see via Facebook, Instagram, Pinterest, Twitter and other social media platforms.
More and more of your customers will be tech-savvy folks who expect businesses to engage with them using these platforms. But when your company steps into the no-holds-barred world of social media, be sure to avoid three common blunders:
- Setting up too many accounts. Don’t assume your target customers will be trolling every available social media site. Identify two or three platforms that your most-sought-after clients favor, then learn the strengths and weaknesses of each platform.
- Blending personal and business accounts. Once in a while, your customers may enjoy a personal photo. But your politics may offend. They may go elsewhere when you post comments about a recent Hawaiian vacation, or your favorite politicians. To avoid appearing unprofessional or trivial, keep your company’s social media site separate from your personal account.
- Using social media for the hard sell (right away). Think of these internet gathering places as a casual party. You don’t walk in, immediately hand out business cards and grab the microphone from the host to advertise your latest product. Take it slowly. Get to know the attendees first. Educate, entertain and add value. Then talk about your business in response to a customer’s expressed needs.
Expect to spend at least three months of concerted effort to see tangible business results using social media platforms. The more time you dedicate to getting to know your clients and potential customers, the better you’ll be at providing them the products and services they want.