MARIELA RUIZ, CPA, PLLC

Helping Individuals and Businesses Financially Thrive.

Tag: IRS compliance

How to Use a 1031 Exchange to Defer Taxes on a Business Sale

January 14, 2025 / / 0 Comments

Selling a business is a significant financial decision, but the tax implications can be daunting. A 1031 exchange is a powerful tool that allows business owners to defer capital gains taxes by reinvesting the proceeds into like-kind property. This strategy can save you money and help you grow your wealth. In this blog, we’ll explore the benefits and process of using a 1031 exchange.

Understanding the Basics of a 1031 Exchange

A 1031 exchange, also known as a like-kind exchange, allows you to defer paying capital gains taxes on the sale of a business property by reinvesting the proceeds into another qualifying property. To qualify, the new property must be of like-kind, which broadly includes real estate used for business or investment purposes. Working with experienced tax professionals can help you ensure compliance with IRS regulations.

Benefits of Using a 1031 Exchange

  1. Tax Deferral: By reinvesting in like-kind property, you can defer paying capital gains taxes, which frees up more capital to reinvest.
  2. Wealth Building: The ability to defer taxes allows you to leverage more funds to acquire higher-value properties, increasing your portfolio’s potential for growth.
  3. Estate Planning: A 1031 exchange can also play a role in estate planning, enabling heirs to inherit properties at a stepped-up basis, and potentially reducing their tax burden.

Key Steps in Executing a 1031 Exchange

  1. Identify Replacement Property: Within 45 days of selling your property, you must identify potential replacement properties in writing.
  2. Close within the Deadline: The exchange must be completed within 180 days from the sale of the original property.
  3. Use a Qualified Intermediary: A qualified intermediary is essential to facilitate the transaction and ensure IRS compliance.

Common Missteps to Avoid

  1. Missing Deadlines: Strict adherence to the 45-day and 180-day deadlines is crucial.
  2. Non-Like-Kind Property: Ensure the replacement property meets the IRS’s like-kind criteria.
  3. Improper Documentation: Accurate records and professional guidance are vital for a successful exchange.

Why work with MARIELA RUIZ, CPA, PLLC?

A 1031 exchange is an excellent strategy to defer taxes and reinvest proceeds from a business sale. However, navigating the complex IRS rules requires expertise. At MARIELA RUIZ, CPA, PLLC, we’re here to help you make the most of this tax-saving opportunity. Contact us today at (956) 997-0067 or visit our website at mruiz-cpa.com to schedule a consultation. Let’s work together to maximize your financial success!

How S Corporation Owners Can Deduct Health Insurance and Save on Taxes

December 4, 2024 / / 0 Comments

Running an S Corporation has its perks, but health insurance benefits can get complex. Unlike employees, S-corp shareholders with over 2% ownership can’t receive tax-free health insurance. In this blog, we’ll outline the steps S-corp owners need to take to access company-sponsored health insurance and correctly deduct these costs.

Understanding Health Insurance Deduction for S Corporation Owners

If you’re an owner of an S Corporation, you can generally deduct health insurance premiums as a business expense. However, the IRS Notice 2008-1 has specific requirements for how these premiums must be reported and deducted. As an owner with at least 2% stake in the company, you can’t claim health insurance deductions the same way your employees do, but you can still enjoy a tax advantage by following these guidelines.

Set Up Health Insurance Under the S Corporation

The first step is to establish a health insurance plan under the company. This is crucial for meeting IRS requirements. Essentially, the company should pay the premiums directly, or you can pay them personally and get reimbursed. If the S Corporation pays the premiums, these payments need to be included in your W-2 wages as taxable income.

Report Premiums on Your W-2

Reporting the premiums correctly on your W-2 is non-negotiable. Health insurance premiums paid by the company on your behalf must be added to your wages as taxable income. This might seem counterintuitive, but adding the premiums to your taxable wages actually opens the door for you to deduct them on your personal income tax return.

Related: Learn more about the difference between gross income before and after taxes here.

Claim the Deduction on Your Personal Tax Return

Once the premiums are reported as income, you’re eligible to deduct them on your Form 1040. Here’s how it works: S Corporation owners who meet the IRS requirements can deduct the health insurance premiums as a self-employed health insurance deduction. This deduction applies to your personal tax return (Form 1040), which reduces your adjusted gross income.

IRS Requirements to Keep in Mind

While it’s exciting to save on taxes, remember that the IRS has strict guidelines for these deductions. Make sure to keep accurate records of premium payments and follow these requirements:

   – Ownership Stake: You must own more than 2% of the S Corporation.

   – W-2 Reporting: Premiums must be reported as taxable income on your W-2.

   – Established Health Plan: The S Corporation must establish the health insurance plan and either pay directly or reimburse you for premiums.

Consult Our Professionals for IRS Notice 2008-01

Given the intricacies of IRS Notice 2008-1 and its implications, consulting with a tax professional is highly advisable. If you need personalized guidance or support in managing your tax strategies, MARIELA RUIZ, CPA, PLLC is here to help. Contact us today at (956) 997-0067 or visit our website at mruiz-cpa.com to learn more about how we can help you make the most of your tax benefits!

Recent Posts

Contact Us!

© 2025 MARIELA RUIZ, CPA, PLLC

Theme by Anders Noren — Up ↑