At the “Webside’

August 29, 2016

(Modern Healthcare, By Erica Teichert; Published August 2016)

 

When Kaiser Permanente’s emergency room wait times began rising three years ago, Dr. Dennis Truong and a colleague launched a telemedicine program to provide faster access to care for their patients.

At the time, there weren’t many training programs for telemedicine or for developing good “webside” manner, which can greatly improve patients’ adherence to treatment. Instead, Truong had to learn on the fly.

“We essentially created our own webside manners through experience and through inter-regional sharing with our other KP regions,” said Truong, telemedicine director for the Mid-Atlantic Permanente Medical Group, McLean, Va.

Like its cousin “bedside manner,” webside manner is a key skill for clinicians involved in telemedicine, experts say. Physicians must proffer an empathetic and compassionate presence to calm fears and provide hope for patients who may be suffering from serious or even not-so-serious illness. Medical schools have always included training in bedside manner in their curricula.

And that’s not just because they want to make a patient feel better about an encounter with the healthcare system. According to a 2014 study published in PLOS One, bedside manner can have a statistically significant impact on patient health, affecting the incidence of obesity, asthma, diabetes, hypertension and osteoarthritis. It can also affect weight loss or blood sugar levels in patients.

But clinicians are going to have to rethink how they deliver this important element of their craft as medicine moves deeper into the digital age. Telemedicine is booming, with startups and new applications springing up constantly.

Approximately 71% of employers say they will offer telemedicine consults through their health plans by 2017. Investment is growing too; the telemedicine market was worth about $500 million in 2014, but that is expected to balloon to $13 billion in 2020, said Fletcher Lance, managing director and global healthcare lead of North Highland, an Atlanta-based global consulting firm.

That’s why experts and consultants are encouraging physicians to prepare for virtual visits with appropriate equipment and a well-developed “webside manner,” which includes all the same skills as bedside manner but has a number of its own requirements. Just like during a traditional office visit, clinicians must juggle paying attention to the patient with filling out electronic health records and other forms. It’s as important to put patients at ease in a virtual environment as it is in an office.

“I think that people forget sometimes in healthcare when we’re very focused on the profession, the data, the latest and greatest of science, we forget that healthcare has two words in it. One is health, one is care,” said Ron Gutman, CEO and founder of HealthTap.

HealthTap has amassed a network of 120,000 physicians providing virtual care via video visits, an online query center and answer library. The Palo Alto, Calif.-based company also developed a series of training programs to help physicians prepare to enter the telemedicine world, including a free certification class that offers a level 1 continuing medical education credit. The class started a couple months ago.

While HealthTap and other groups offer certification and training courses for physicians who want to use telemedicine, preparation classes are only starting to take hold at medical schools. The University of Arizona has incorporated some telemedicine into its medical school, according to Elizabeth Krupinski, a University of Arizona professor and associate director of evaluation for the Arizona Telemedicine Program. But there are no formal requirements for telemedicine education in medical school curricula yet.

It may not take considerable formal training to get comfortable with telemedicine practices, though. In many cases, it simply requires common sense. According to Gutman, starting a virtual visit off right with proper webside manner is a key element to a successful telemedicine episode. “Every consultation starts with a smile and ends with a checklist,” he said.

That checklist could involve using proper intake documentation and following a framework to determine whether a virtual visit diagnosis is appropriate or a follow-up in-person visit will be necessary. By making patients comfortable during their telemedicine appointments, physicians can improve patients’ confidence and the likelihood they’ll adhere to treatment regimens, Gutman said.

But doctors need to be confident in their own abilities, according to HealthTap’s chief medical officer, Geoff Rutledge. Rather than erring on the side of not diagnosing patients, Rutledge encourages physicians in telemedicine to follow their checklists. “There is a presence that you project through the virtual channel and you should be conscious of it,” he said.

That presence can be improved with good patient communication, whether it’s explaining that they’ll be looking at a patient’s record on a screen for a moment rather making eye contact or asking a patient to provide more information with a blood pressure cuff.

While good bedside manner easily translates into good webside manner for most doctors, experts encourage physicians to get some training before they start seeing virtual patients so they understand the differences between telemedicine and face-to-face consultations. Just as in the office, physicians should present themselves professionally in virtual settings, paying attention to their office layout, surrounding equipment and their dress.

HealthTap has amassed a network of 120,000 physicians providing virtual care via video visits, an online query center and answer library.“When you’re conducting a videoconference with a patient, it’s not the same thing as getting up Saturday morning, going on FaceTime and talking to your best buddy,” Krupinski said. “It’s not that simple.”

Lighting and background are key elements of getting webside manner right, Krupinski said. If a physician sets himself up in front of a window, he’ll look like a dark shadow. If he has a cluttered or shabby backdrop, it may not sit well with patients.

In addition, physicians should be aware of their internet connection, camera resolution and audio equipment to make sure their stream won’t cut out in midsession. “If someone has a first bad taste, that’s not good for anything,” said Dr. Jim Marcin, head of pediatric critical-care medicine at the UC Davis Health System, Sacramento, Calif.

In Northern California, Marcin and his colleagues use telemedicine to provide virtual support to other hospitals and physicians and curb unnecessary transfers in their emergency departments. Specialists can appear remotely in ICUs to speak with patients, their parents or their local doctors and help determine a treatment regimen.

So far, Marcin says specialists, patients and local doctors have appreciated the live interactive video consultations. Studies have shown they’re capable of providing the same care and diagnoses via telemedicine as they can deliver in person.

“It’s a win-win-win,” he said. Marcin believes telemedicine also performs well in delivering mental health, endocrinology and other specialty services that require more thinking and talking. It works less well for specialties that require more physical examinations.

According to Marcin, even 15 minutes of basic video etiquette training can help clinicians become comfortable with using telemedicine and develop a better webside manner. The UC Davis system provides training and does extensive equipment testing at its remote sites before setting up its virtual consultation systems.

“It’s just a different medium in providing care,” Marcin said. “Once they have basic pointers on what to do, those with good interpersonal skills are well-received, and it goes well.”

But Marcin and several other experts voiced concern over the direct-to-consumer model that some telemedicine providers have taken, which allows individuals to have one-off visits with doctors rather than build relationships with their medical providers.

“That’s the first problem in relationship-building or engagement,” said Arman Samani, chief technology officer at AdvancedMD, an EHR and practice-management software company. “If you don’t know somebody, if you’re going to have one transaction with them, how can you engage with them effectively?”

Samani and his AdvancedMD colleagues encourage physicians to start using telemedicine with their existing clients before considering expanding to new clients or a larger geographical market. Even then, doctors should discourage using telemedicine as a one-off solution in favor of developing relationships with their expanding clientele.

That could include sending marketing messages to patients to let them know about telemedicine offerings and making it as easy to set up a virtual visit as an in-house appointment, Samani said.

However, there’s a convenience factor—for both doctors and patients—who use broad telemedicine networks such as HealthTap. Dr. Dariush Saghafi, a neurologist in Parma, Ohio, has been using HealthTap’s virtual platform since 2013, first by answering questions on the platform’s public Q&A board before conducting full-fledged consultations.

Saghafi acknowledged that doctor-patient relationships generally start with a physical visit since it can be difficult to adapt to a fully virtual relationship or refer far-flung patients to providers in their area for follow-up visits. “You kind of learn how to work around that,” he said. “You learn where the safe zones are to tread in when you’re recommending interventions, treatments and prescriptions.”

Kaiser’s Truong noted that his system encourages clinicians to “up-triage” patients for physical examinations when needed. Kaiser, which has made a major commitment to telehealth and projects it will log more telehealth visits than office visits within a few years, offers telemedicine training and live demonstrations for physicians.

“Remember that the patient on the other side, this may be their first time receiving care by video, too,” he said. “You’re both experiencing this newly together.”

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ColoradoCare An Independent Analysis

August 19, 2016

Colorado voters have a momentous choice to make about their health care this fall. Amendment 69 would create ColoradoCare, a revolutionary system to pay for health care. It’s a response to concerns that the current system costs too much and fails to provide for everyone’s health needs. ColoradoCare would resemble some systems in Canada and Europe, where every resident has health coverage financed by taxes instead of private insurance premiums, but would be a first for an American state. To read more, click here.

If you have questions about ColoradoCare, BiggsKofford is here to help. Give us a call at (719) 579-9090.

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Financial Analysis of ColoradoCare

August 12, 2016

(Colorado Health Institute; Published August 2016)

ColoradoCare, the proposed universal health care system on November’s ballot, would struggle to bring in enough revenue to cover its costs, according to an independent financial analysis released by the Colorado Health Institute.

The Colorado Health Institute is a nonpartisan source of independent and objective health information, data and analysis. The new study finds that:

  • ColoradoCare would nearly break even in its first year, but would slide into ever-increasing deficits in future years without additional tax increases.
  • On the plus side for ColoradoCare, it would be able to reach its goal of saving money in the health care system by cutting billions of dollars in administrative costs and insurance company profits. That money could be reallocated to provide health insurance to the 6.7 percent of Coloradans who remain uninsured, making Colorado the first state to achieve universal coverage.
  • However, the revenues for ColoradoCare — primarily from a new 10 percent income tax — wouldn’t be able to keep up with increasing health care costs, resulting in red ink each year of its first decade.

The analysis finds that ColoradoCare would face the same financial dilemma as the current health care system — the inability to tame rising health care costs. That would create a structural problem.

Although savings on administrative costs would grow over time, those savings would be overwhelmed by the increasing cost of health care, which is projected to grow faster than tax revenue. This is crucial because taxes would account for roughly two-thirds of ColoradoCare’s projected funding.

This is the second in a series of independent analyses by the Colorado Health Institute of Amendment 69, the proposed constitutional amendment that would create ColoradoCare. The first installment, published in April, focused on how ColoradoCare would work and posed key questions about its structure, financing and governance.

Michele Lueck, president and CEO of the Colorado Health Institute, said that these analyses of ColoradoCare fulfill an important part of the organization’s mission of bringing evidence-based information and rigorous analysis to key health care policy discussions.

“By mission and by charge, we do not take positions on legislative choices, policy options or proposed constitutional amendments,” she said. “Our job is to shed light on the issues, bring in disciplined analysis, often where there isn’t any, and allow educated voters and policymakers to make informed choices on matters of health and health care.”

An infographic detailing how the Colorado Health Institute conducted the analysis is available here.

Have questions about ColoradoCare? Give us a call at (719) 579-9090. We are here for you.

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IRS Extends Health Care Information Return Due Dates

January 08, 2016

The Internal Revenue Service (IRS) has announced that the due date for providing the following 2015 forms have been extended from February 1, 2016 to March 31, 2016:

  • 2015 Form 1095-B – Health Coverage
  • 2015 Form 1095-C – Employer Provided Health Insurance Offer and Coverage

Also, the IRS has announced that the due date for the following forms are extended from Feb. 29, 2016, to May 31, 2016, if not filing electronically, and from March 31, 2016, to June 30, 2016, if filing electronically:

  • 2015 Form 1094-B – Transmittal of Health Coverage Information Returns,
  • 2015 Form 1095-B –Health Coverage
  • 2015 Form 1094-C – Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns
  • 2015 Form 1095-C –Employer-Provided Health Insurance Offer and Coverage

If you have any questions regarding this, please to not hesitate to contact Greg Gandy or Mike McDevitt at (719) 579-9090, and we will be happy to serve you.

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2016 Deductible Vehicle Mileage Rate Decrease

January 08, 2016

The IRS has announced the official mileage rates for 2016.   The IRS mileage rates for 2016 for the use of a vehicle are:

  • 54 Cents per mile for business use down from 5 cents in 2015.
  • 19 cents per mile for medical reasons or moving purposes down from 23 cents in 2015.
  • 14 cents per mile for charitable purposes which is the same rate as in 2015.

We hope this information is helpful. If you would like more details about these changes or any other aspect of the new law, please do not hesitate to call Greg Gandy or Michael McDevitt at our office at 719-579-9090.

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Tax-Free Income from Renting Your Home

May 01, 2015

From Canton, Ohio, where the Pro Football Hall of Fame Weekend takes place in August, to Los Angeles, which has Haunted Hayrides to celebrate Halloween throughout October, cities small and large host special events throughout the year. Moreover, oceanfront communities attract millions of tourists in the summer while mountain regions offer winter sports each winter.

What is the common denominator? If you live in an area popular with tourists, for a season or a month or even a day, you can rent your home for a sizable amount. According to some reports, homes in the Augusta, Georgia area rent for as much as $20,000 for the week of the Masters Golf Tournament in April.

Moreover, income from such rental activity is legitimately tax-free: you don’t have to report it on your tax return. You can’t deduct any expenses incurred for the rental, but you still can take applicable mortgage interest and property tax deductions for your home with no reduction for the profitable rental period.

Fortune’s Fortnight

As you might expect, you have to clear some hurdles to qualify for this tax-free income. Perhaps most important, you must rent the home for no more than 14 days during the year. If you go over by even one day, tax-free taxation will vanish. In that case, you will have to report your rental income, and you may take appropriate deductions, but the process can become very complicated.

In addition to the 14-day limit, the IRS says that you must use the “dwelling unit as a home.” This means that you must use the property for personal purposes more than (a) 14 days or (b) 10% of the days it is rented to others at a fair price, whichever is greater.

Example 1: Jan Harrison lives in Charlotte, North Carolina, throughout the year but rents her home for a week when the Bank of America 500 race is in town. She moves in with her sister and then goes home after the weeklong rental ends. Jan lives in her home well over 300 days in the year, so claiming the tax-free rental income won’t be a problem.

You also can claim this tax break for a vacation home as long as there are at least 15 days of personal use and you keep rentals under 15 days a year. With either a primary residence or a second home, keep careful records to show that you observed the 14-day rental limit.

Proceed Prudently

Tax-free income is certainly welcome, but it shouldn’t be your only concern. Keep in mind that you are letting other people occupy your home, perhaps during a time when parties may occur. Make sure you have a formal rental agreement in place and that you collect the rent upfront, along with a deposit for possible property damage. Check with your homeowners insurance agent to see if you need special coverage, and check with local officials to find out if you need a permit for a short-term rental.

If you decide to use a service to handle the rental and save you some aggravation, ask what fees you’ll owe. In addition, ask if the rental income will be reported to the IRS. Such reports may complicate what can be a straightforward tax benefit; our office can explain the possible problems and solutions.

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Deducting Business Travel

April 30, 2015

As the world shrinks, business owners may find themselves traveling to foreign destinations. Often, such trips are vital, leading to personal visits with suppliers and potential customers. Ideally, you’ll be able to deduct all your travel costs, but that may not be the case if you venture beyond the 50 states and Washington, D.C.

 

The Seven-Day Rule

If you travel outside the U.S. for a week or less, your trip will be considered entirely for business, even if you combine business and nonbusiness activities. Then, you can deduct all of your travel costs. A week, for this purpose, is seven consecutive days, not counting the day you leave the U.S.

 

Example 1: Denise Edwards has a clothing import business in Chicago. She travels to San Francisco on Tuesday, then flies to Hong Kong on Wednesday. After spending Thursday and Friday in business discussions, Denise spends Saturday through Tuesday sightseeing. She flies back to San Francisco on Wednesday and returns to Chicago on Thursday.

 

Here, Denise was not outside the U.S. for more than a week. (The day she departed from San Francisco does not count as a day outside the U. S.) Therefore, she can deduct all of her travel costs. She also can deduct the cost of her stay in Hong Kong for the days she worked there but not her costs for her sightseeing days.

 

More than One Week

Business trips longer than one week trigger another set of rules. As long as 75% or more of the trip’s total days are business days, you can deduct all your travel costs. Days traveling to and from your destination count as business days, for the purpose of reaching the 75% mark. Again, your costs for nonbusiness days are not tax deductible.

 

If your trip is primarily for business, but you fail both the one week and the 75% tests for the travel, calculating your deduction becomes more complicated. You can only deduct the business portion of your cost of getting to and from your destination and must allocate your travel time on a day-to-day basis between business days and nonbusiness days.

Example 2: Henry Jackson owns a restaurant supply business in Boston. He flies to Berlin on March 7 for a conference and spends time there on business until March 17. That day, Henry flies to Brussels to see friends and tour the local museums. On March 24, he returns to Boston from Brussels.

As the IRS looks at Henry’s itinerary, it appears that Henry could have returned to Boston on March 17, after completing his business. Thus, 11 days of the trip (March 7–17) count as business days while the other seven days (March 18–24) are nonbusiness days.

With this reasoning, 7 out of 18 days of the trip were nonbusiness days, so 7/18 of what it would have cost him to travel roundtrip between Boston and Brussels is not tax deductible.

Assume Henry’s total airfare costs were $2,000, whereas roundtrip airfare between Boston and Brussels would have been $1,500. Henry must subtract 7/18 of this roundtrip fare ($1,500 x 7/18 = $583) from his actual travel expenses. Because Henry spent $2,000, subtracting $583 gives him a $1,417 deduction for his airfare. He can deduct his costs while in Berlin on business but not his costs while in Brussels for other purposes.

As you can see, calculating foreign business travel deductions can be complex. If you will be outside the United States for business, our office can help you set up a schedule for optimal tax benefits. Call BiggsKofford at (719) 579-9090 wit any questions you may have.

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Business Owners Get More Bang From Flex Plan Bucks

April 28, 2015

Although all the effects of the Affordable Care Act (ACA) are still unclear, it’s likely that health insurance costs will continue to increase in the future. Business owners may require greater health plan contributions from participating employees. In addition, this health care law already has made it more difficult for individuals to deduct medical outlays: For most taxpayers, only expenses over 10% of adjusted gross income (AGI) are tax deductible, versus a 7.5% hurdle under prior law. (The 7.5% rule remains in place through 2016 for individuals 65 and older and their spouses.)

In this environment, business owners stand to benefit substantially by offering a health flexible spending account (health FSA). These plans allow employees to set aside up to $2,500 per year that they can use to pay for health care expenses with pretax dollars.

Example 1: XYZ Corp. offers a health FSA to its employees. Harvey James, who works there, puts $2,400 into the plan at the beginning of the year. Each month, $200 will be withheld from Harvey’s paychecks, and he’ll owe no income tax on those amounts.

Going forward, Harvey can be reimbursed for his qualified medical expenses that are not covered by his health plan at XYZ. Possible examples include health insurance deductibles, copayments, dental treatments, eyeglasses, eye surgery, and prescription drugs. Such reimbursements are not considered taxable income. Thus, Harvey will pay those medical bills with pretax rather than after-tax dollars.

Health FSAs and the Affordable Care Act

Under the ACA, there are limitations on an employer offering a health FSA to their employees. Standalone health FSAs can only be offered to provide limited scope dental and vision benefits. An employer can only offer a health FSA that provides more than limited scope dental and vision benefits to employees if the employer also offers group major medical health coverage to the employees.

Additionally, an employer can make contributions to an employee’s health FSA. However, under the ACA, the maximum employer contribution the plan can offer is $500 or up to a dollar-for-dollar match of the employee’s salary reduction contribution.

Ultimately, these additional new rules can affect whether an employer can offer a health FSA and the amount of any optional employer match; our office can provide guidance for your specific situation.

Employer Benefits

A health FSA’s benefits to participating employees are clear. What will the business owner receive in return? Chiefly, the same advantages that come from offering any desirable employee benefit. Recruiting may be strengthened, employee retention might increase, and workers’ improved morale can make your company more productive.

There’s even a tax benefit for employers, too. When Harvey James reduces his taxable income from, say, $75,000 to $72,600 by contributing $2,400 to a health FSA, he also reduces the amount subject to Social Security and Medicare withholding by $2,400. Similarly, XYZ Corp. won’t pay its share of Social Security or Medicare tax on that $2,400 going into the health FSA.

Counting the Costs

However, drawbacks to offering an FSA to employees do exist. The plan, including reimbursements for eligible expenses, must be managed. Many companies save headaches by hiring a third-party administrator to handle a health FSA, but there will be a cost for such services.

In addition, companies offering health FSAs to employees should have enough cash to handle a large demand for reimbursement, especially early in the year.

Example 2: Kate Logan also works for XYZ and she chooses to contribute $1,800 to her health FSA at the beginning of the year: $150 a month, or $75 per each semimonthly paycheck. Just after her first contribution of the year, Kate submits paperwork for a $1,000 dental procedure. XYZ might not have trouble coming up with $1,000 for Kate, but there could be a problem if several employees seek large reimbursements after making small health FSA contributions.

Using It, Losing It

Employers also should be sure that employees are well aware of all the implications of health FSA participation. For years, these plans have been “use it or lose it.” Any unused amounts would be forfeited at year end.

Example 3: Mark Nash participated in an FSA offered by XYZ several years ago. He contributed $2,000 but spent only $1,600 during the year. The unspent $400 went back to XYZ.

In 2005, the rules changed. Now, if the FSA permits, participants have until mid-March of the following year to use up any excess. If XYZ had adopted this optional grace period, Mark Nash would have had an extra 2½ months to spend that leftover $400 on qualified medical costs.

Yet another change occurred in late 2013—a $500 option. Under this provision, FSA plans can be amended to allow each employee a carryover of up to $500, from one year to the next. Plans with this $500 carryover provision cannot allow a grace period as well. If your company now has an FSA with this optional grace period, it will have to amend the FSA to eliminate the grace period in order to add the $500 carryover provision. Our office can help with the necessary paperwork.

In addition to explaining all the rules on possible forfeitures, employers offering an FSA should be sure their employees know about a possible impact on Social Security benefits. As mentioned, FSA contributions aren’t subject to Social Security; those contributions aren’t included in official compensation, for Social Security purposes. Employees should know that reduced compensation today might reduce Social Security benefits tomorrow. Companies that spell out all the FSA implications to workers may reduce misunderstandings and future compla

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Reasonable Compensation for S Corporation Owners

February 27, 2015

For regular C corporations, “reasonable compensation” can be a troublesome tax issue. The IRS doesn’t want shareholder executives to inflate their deductible salaries while minimizing the corporation’s nondeductible dividend payouts.

For S corporation owners, the opposite is true. If owner employees take what the IRS considers “unreasonably low” compensation, the IRS may recast the earnings to reflect higher payroll taxes, along with interest and penalties.

One Pocket to Pick

Eligible corporations that elect S status avoid corporate income taxes. Instead, all income flows through to the shareholders’ personal tax returns.

Example 1: Ivan Nelson owns a plumbing supply firm structured as an S corporation. Ivan’s salary is $250,000 a year while the company’s profits are $400,000. The $650,000 total is reported on Ivan’s personal tax return.

In 2015, Ivan pays 12.4% as the employer and employee shares of Social Security tax on $118,500 of earnings. He also pays 2.9% Medicare tax on his $250,000 of salary. As a result of recent tax legislation, Ivan—who is not married—owes an additional 0.9% Medicare tax on $50,000, the amount over the $200,000 earnings threshold (the threshold is $250,000 on a joint tax return). Altogether, Ivan pays well over $20,000 in these payroll taxes.

Going Low

Often, S corporation owners have a great deal of leeway in determining their salary and any bonus. Holding down these earnings may reduce payroll taxes.

Example 2: Jenny Maxwell owns an electrical supply firm across the street from Ivan’s business. Jenny’s company also is an S corporation. She reports the same $650,000 of income from the business but Jenny classes only $75,000 as salary and $575,000 as profits from the business. Thus, she pays thousands of dollars less than Ivan pays for Social Security and Medicare taxes.

Proving Your Payout

As mentioned, the IRS might target S corporation owners suspected of lowballing earned income. Therefore, all S corporation shareholders should take steps to justify the reasonableness of their compensation.

If you own an S corporation, consider spelling out your salary level in your corporate minutes. Where possible, give examples and quote industry statistics that show your compensation is in line with the amounts paid to executives at similar firms.

Other explanations also might help. Depending on the situation, you might say that business is slow, in the current economy, so the minutes will report that you are keeping your salary low to provide working capital for the company. If your business is young, the minutes could explain that you’re holding fixed costs down, so the company can grow, but you expect to earn more in the future. In still another scenario, you might say that you are nearing retirement and making an effort to rely more on valued employees, so a modest level of earnings reflects the actual work you’re now contributing.

As illustrated above, holding down S corporation compensation can result in sizable payroll tax savings. Our office can help you establish a reasonable, tax-efficient plan for your salary and bonus.

 Calculating Coverage

Beyond compensation, health insurance also may affect the payroll tax paid by an S corporation owner. Special rules apply to anyone owning more than 2% of the company’s stock.

If the company has a health plan and pays some or all of the costs for coverage of such a so-called “2% shareholder,” the payments will be reported to the IRS as taxable income. However, that amount will not be subject to payroll taxes, including those for Medicare and Social Security. The company can take a deduction for these payments, effectively reducing corporate profits passed through as taxable income for the shareholder.

In addition, the S corporation shareholder may be able to deduct the premiums paid by the company—this deduction can be taken on page 1 of his or her personal tax return, which may provide other tax benefits. However, such an “above-the- line” deduction cannot be taken in any month when the shareholder or spouse is eligible to participate in another employer-sponsored health plan. Also, this deduction can’t exceed the amount of the shareholder’s earned income for the year.

This can be a complicated issue, especially if your state law prevents a corporation from buying group health insurance for a single employee. If you own an S corporation, our office can help you decide the best way to hold down payroll tax as well as income tax from your he

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Deductions for Dining Out

February 25, 2015

Champagne and caviar on the IRS? Typically, the answer is no. Nevertheless, there are times when you can go out to eat—perhaps to the best restaurant in town—and recoup some of your costs through tax savings.

Business as Usual

Perhaps the most obvious way to deduct dining costs is to buy a meal for someone with whom you do business or would like to do business. The good news is that everything counts: food, drinks, tax, and tip.  The bad news? Meal costs typically are considered entertainment expenses, which generally have a 50% cap on deductions.

Example 1: Nora Peters has dinner with a potential client for her landscaping business. They both have full-course meals with wine, and the tab comes to $100 with tax and tip. If Nora pays the bill, she can take a $50 tax deduction.

The IRS explicitly frowns on so-called “taking turns” deductions. Thus, if the potential client is Nora’s neighbor and they dine together every month, alternating as to who pays the bill, the IRS won’t allow either party to take tax deductions.

However, that may not always be the case.

Example 2: Nora and her neighbor dine together throughout the year, discussing possible ideas for the latter’s garden, and Nora picks up the tab every other time, paying a total of $600. Eventually, the neighbor hires Nora to landscape her garden; Nora ultimately earns $2,000 from that job, reported as taxable income. Can Nora take a $300 (50% of $600) tax deduction, despite the alternate bill paying? Our office can help you determine the answer to such difficult questions.

Beyond Reasonable Doubt

The IRS also asserts that meal outlays that are “lavish or extravagant” won’t qualify for a tax deduction. Unfortunately, the agency doesn’t provide a dollar limit or any tangible guideline, only that the cost must be “reasonable,” considering the “facts and circumstances.” Merely dining at a deluxe restaurant or a pricey resort won’t automatically rule out a 50% deduction.

One way to approach this issue is to put things into perspective.

In a major city with a steep cost of living, spending $100 on a dinner for two may not be considered lavish, if there’s a valid business purpose for the excursion. Conversely, spending hundreds of dollars on a meal with someone who has only a peripheral connection to your company and little chance of providing meaningful revenues in the future might not pass muster.

One U.S. Commerce Department website provides an example of spending $200 for a business-related meal. If $110 of that amount is not allowable because it is lavish and extravagant, the remaining $90 is subject to the 50% limit. Thus, the tax deduction could be $45 (50% of $90).

Going Solo

You should be aware that the 50% limit also applies to business meals away from home, not just to meals where you’re entertaining someone.

Example 3: Ron Sawyer travels from his Dallas home to Tucson on a sales trip. He does no entertaining but spends $140 eating his meals in restaurants. Ron’s meal deduction is $70 (50% of $140).

Filling out a Foursome

Generally, you can’t claim a 50% deduction for buying your spouse a meal. There are exceptions, though, if including your spouse at the table serves a business purpose, rather than one that’s personal or social.

Example 4: Tim Walker invites a customer to dinner. The customer is visiting from out of town, so the spouse is also invited because it is impractical to entertain the customer without the spouse. Tim can deduct 50% of the cost of the meal for the customer’s spouse. What’s more, if Tim’s wife joins the group because the customer’s spouse is present, the cost of the meal for Tim’s wife is also deductible.

Taking the Deduction

For self-employed individuals and business owners, taking 50% deductions for business meals may be straightforward. For employees, though, those deductions might be harder to obtain. Unreimbursed expenses are included in miscellaneous itemized deductions, which are deductible only to the extent they exceed 2% of adjusted gross income (AGI).

Example 5: Lynn Knox, who is an employee, spends $500 on business meals in 2015 and is not reimbursed. When she prepares her tax return for the year, she includes $250 as a miscellaneous itemized deduction. Her AGI is $100,000, so her 2% threshold is $2,000. If Lynn’s miscellaneous deductions add up to $2,400, she is entitled to deduct the $400 excess. Without her business meals, Lynn’s miscellaneous deductions would have been only $2,150, generating a $150 deduction, so Lynn effectively gets a $250 deduction for her $500 of business meal expenses. If Lynn’s miscellaneous deductions were under $2,000, she would have no tax benefit from her business meals.

Trusted Advice

Meal Plans

  • In order to support a deduction for buying someone a meal, you must be present.
  • The purpose of the meal must be the active conduct of business, you must engage in business during the meal, and you must have more than a general expectation of getting income or some specific business benefit in the future; or the meal must be associated with the active conduct of business and come directly before or after a substantial business discussion.
  • You should keep a record of all these meal expenses. Note the “who, where, when, and how much” details along with an explanation of the business purpose of your mealtime conversation.
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