Posts Tagged ‘S-Corp’

Review Your 2016 Tax Targets

September 5th, 2016
REVIEW YOUR 2016 TAX TARGETS
 
Mid-year is an excellent time for both employees and employers to make sure they will reach their payroll, tax and financial objectives for calendar year 2016. The following items should be reviewed for possible action steps before your last payroll of 2016. 

ARE YOUR TAX WITHHOLDINGS ON TRACK?

Now is the time for every employee to review their 2016 payroll income tax withholdings to prevent April 15, 2017 “tax surprises”. This is particularly important for business owners and households in which both spouses are employed. AccuPay would be pleased to adjust your remaining 2016 tax withholdings upon your instruction. Not sure if your withholding is adequate? Visit our website and plug your information in to the IRS Withholding Calculator for a quick review.

ON TRACK TO MEET YOUR RETIREMENT FUNDING OBJECTIVE?

An employee can contribute up to $18,000 this year from payroll as “elective deferrals” to their 401(k) and 403(b) retirement accounts. If an employee is at least age 50 by 12/31/16,an additional $6,000 can be contributed as a “catch-up” contribution. If you are participating in a SIMPLE-IRA plan through your employer, the maximum 2016 employee contribution amount is $12,500, plus $3,000 as an additional “catch-up” for those at least age 50.

Review your year-to-date payroll details to determine if you will “hit” your retirement plan targets for 2016.

HSA TARGETS ON TRACK FOR 2016?

Maximum permitted funding for 2016 to health savings accounts is $3,350 for a “self-only” HSA and $6,750 for a “family” HSA. For those employees at least age 55 this year, you can add an additional $1,000 to your maximum allowable 2016 HSA funding.

These HSA funding limits are the total combined amounts which can be contributed by an employee plus any employer matching contributions.

FLEXIBLE SPENDING ACCOUNTS (FSA’s)

Those employees who are enrolled in employer “flexible spending account” programs should review their 2016 FSA contributions (limit of $2,550 for 2016),  how much they have spent, and how much remains to be spent by year-end (or a later “grace period date” early 2017 if the employer plan includes a grace period). If the employer has amended their Section 125 plan to include a “rollover provision”, an employee can carry/roll over up to $500 per year of unused FSA funds to the following year.

COLLEGE CHOICE 529 PLAN FUNDING 

For employees whose employers are sponsoring Indiana College Choice 529 plan payroll deduction plans, the State of Indiana provides an Indiana resident with an income tax credit in the amount of 20% of up to $5,000 of Indiana 529 education plan funding, per household. Essentially, if a household contributes $5,000 into an Indiana 529 education plan, the State of Indiana gives you $1,000 back in the form of a tax credit on your 2016 personal tax return.

AccuPay can help an employer set-up a payroll deduction 529 plan as a no-cost employer – sponsored fringe benefit plan for employees. You can contact AccuPay or click here for program details.

FAMILY MEMBERS ON THE PAYROLL

If a business owner has children or parents who provide services to their business, putting them “on the payroll” saves income taxes if the children or parents are in a lower income tax bracket than the business owner. The business should pay wages which are consistent with the value of the services, based on time spent and job complexity. For 2016, a child can earn up to $6,300 in wages without paying any Federal income tax. If the business sponsors a 401(k) or SIMPLE-IRA plan, consider paying your spouse “on the payroll” so that he/she can also participate in your business retirement plan for 2016.

REIMBURSE EMPLOYEE VEHICLE EXPENSES

The 2016 IRS permitted business mileage rate is 54 cents per mile.

“S” CORPORATION PAYROLL MEDICAL PREMIUMS 

Based on IRS announcements and positions they have taken within the last few years, it is essential that “S” corporation owner – employees have their medical insurance premiums either paid directly by the “S” corporation or personal health insurance premiums reimbursed by the “S” corporation. Health insurance premiums paid personally by the “S” corporation owner-employee and not reimbursed will not be eligible for the “self-employed health insurance deduction”.

Make sure all employed owners of a “S” corporation have been reimbursed for their premiums by 12/31/16 (if not directly paid by the “S” corporation).

“S” CORPORATION OWNER WAGES 

“S” corporations which are profitable are required to pay “reasonable compensation” to their owner-employees. If you own a profitable “S” corporation and have taken little or no wages to date in 2016 consult with your tax advisor as to “catching up” your compensation to a “reasonable level” before the end of 2016.

IN CONCLUSION

Call one of AccuPay’s “CPP/CPA advisor service teams” at 317-885-7600 to discuss any questions or comments you have about payroll tax planning adjustments needed before year-end 2016.  

 

PayDay is an email communication of payroll news, legal updates and tax considerations intended to inform clients and colleagues of AccuPay about current payroll issues and planning techniques.  You should consult with your CPA or tax advisor before implementing any ideas, comments or planning techniques.

“S” Corporations – “Don’t Blow This!”

December 14th, 2015

Special rules must be followed so that 2% or more “S” corporation shareholder-employees can deduct health insurance premiums covering the shareholder, his/her spouse and dependents.  IRS Notice 2008-1 permits tax deductions for “S” corporation shareholder-employees who meet the following requirements:

  • The health insurance premiums are either paid directly by the “S” corporation OR are reimbursed to the shareholder-employee, if paid from personal funds; AND
  • The “S” corporation employer must report the amount of health insurance premiums paid or reimbursed as taxable wages in the employee’s Form W-2. The premiums are not taxable for FICA or Medicare taxes.

If the above requirements are met, the “S” corporation deducts the owner’s health insurance as compensation expense, the owner reports the premiums as income included in his/her W-2, and the “S” corporation owner then deducts the same amount as “self-employed health insurance” on his/her Form 1040 personal tax return. 

IRS Notice 2008-1 clearly indicates that the owner’s health insurance deduction is not available if the shareholder-employee personally pays the premium and is not reimbursed and taxed by the “S” corporation on Form W-2.

CONCLUSION

Every “S” corporation should directly pay or reimburse their owners’ health insurance premiums and report the amount at year-end as wages on the owners’ W-2 forms. AccuPay can assist you in reporting the insurance on year-end W-2 forms to ensure annual income tax deductions for the employee-shareholders of the “S” corporation.

PayDay is an email communication of payroll news, legal updates and tax considerations intended to inform clients and colleagues of AccuPay about current payroll issues and planning techniques.  You should consult with your CPA or tax advisor before implementing any ideas, comments or planning techniques.