small business owner – MARIELA RUIZ, CPA, PLLC

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

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!

Tips for Managing Expenses as a Small Business Owner

November 4, 2024 / admin / 0 Comments

Starting a small business is often fueled by passion, but managing expenses requires a sharp eye and a steady hand. However, according to a study by Fundera, 20% of small businesses fail in their first year and 30% of small businesses fail in their second year. These statistics underscore the importance of solid financial management from day one. In this month’s blog, we will walk you through some tips to help you manage your expenses effectively and maximize your profits.

Set a Realistic Budget and Stick to It

Creating a budget isn’t just about making numbers match. It’s a roadmap for your business’s financial health. Start by categorizing your expenses, such as operating costs and employee wages. Aim to keep your fixed costs as low as possible in your early stages. Once you’ve laid out a realistic budget, do your best to stick to it. Budgets also help you differentiate between your business and personal expenses, a critical aspect if you’re transitioning from a hobby to a business.

Related: Learn more about accounting considerations when transitioning your hobby into a business here.

Monitor Cash Flow Regularly

Cash flow is the lifeblood of any business. Monitoring it allows you to understand exactly how money is moving in and out of your business. Regular cash flow analysis will show you patterns, like times of the year when revenue is low or when expenses tend to spike. Tracking cash flow on a weekly basis can help you anticipate shortfalls and plan accordingly. You can always use accounting software to automate this process.

Plan for Retirement Early

It’s easy to focus all your energy on your business, but don’t overlook your personal financial future. Planning for retirement should start as soon as possible, even in the early years of your business. Setting up a retirement plan is not only a smart personal investment; it also offers tax advantages for your business.

Related: Learn more about how to plan for retirement as a business owner here.

Keep an Eye on Fixed Costs

Fixed costs are the expenses that remain the same month after month, such as rent, utilities, and payroll. While some fixed costs are non-negotiable, there are ways to manage them smartly. For example, consider using a co-working space instead of renting a full office. The less you spend on fixed costs, the more flexibility you’ll have in managing other expenses.

Final Thoughts

Managing expenses is a cornerstone of any successful business. By following the above tips, you can ensure your business remains financially healthy. If you need further assistance with expense management, MARIELA RUIZ, CPA, PLLC is here to provide expert guidance. Contact us today at (956) 997-0067 or visit our website at mruiz-cpa.com to learn more about our financial consulting services.

Accounting Considerations When Transitioning Your Hobby into a Business

July 1, 2024 / admin / 0 Comments

Many people dream of turning a hobby into a small business. Perhaps you’re a chef and would like to open a restaurant. Or maybe you’d like to turn your photography passion into profit. You might not face significant accounting challenges if your new business is profitable over time, but what if the new business’ expenses exceed income? In this month’s blog, we’ll show you key considerations to keep in mind to ensure your transition is smooth and financially sound.

Keep Personal and Business Finances Separate

One of the first steps is to open a separate business bank account. This distinction between personal and business finances is not just a best practice; it’s essential. Mixing the two can lead to confusion, making it challenging to track your business expenses and income accurately. Moreover, it can create issues when it’s time to manage your financial records.

Understand Your Costs

Accurately tracking and understanding your costs is critical. This includes both fixed costs (rent, utilities, and insurance) and variable costs (materials, shipping, labor, etc.). Knowing your break-even point—the point at which your revenue equals your costs—will help you price your products correctly and ensure your business is profitable.

Understand the Accounting Principles Behind Revenue Recognition

While not all businesses are required to comply with the revenue recognition principle of accounting, it’s important to take the time to understand it. In the US, according to the revenue recognition principle of ASC 606, revenue should be recognized when the delivery of promised goods or services matches the amount expected by the company in exchange for the goods or services.

This will help ensure your financial statements accurately reflect your business’s financial health, and how your business is doing financially.

Related: Learn more about why your business isn’t making money and how to fix it here.

Consider Hiring a Professional

While DIY accounting is possible, hiring a professional accountant can save you time and help you avoid costly mistakes. An accountant can offer valuable insights, ensure compliance with financial regulations, and provide advice tailored to your specific business needs. Additionally, ensure your accountant adheres to accounting ethics to maintain the highest standards in your business operations.

Hire MARIELA RUIZ, CPA, PLLC

At MARIELA RUIZ, CPA, PLLC, we are dedicated to helping you navigate these complexities and set your business up for success. We’ve helped many small businesses like you lay a strong foundation for your business’s financial health. Visit our website at mruiz-cpa.com or call us at (956) 997-0067 to learn more about how we can assist you in making your business financially sound and profitable.

Accounting for Startups: Key Considerations and Best Practices

June 8, 2023 / admin / 0 Comments

As a startup owner, navigating the world of accounting can be both challenging and crucial for the success of your business. Understanding the key considerations and implementing best practices in accounting is essential to ensure accurate financial records, regulatory compliance, and informed decision-making. In this blog post, we will explore the key considerations and best practices that every startup owner should be aware of to establish a solid accounting foundation.

Key Considerations for Startup Accounting

When it comes to accounting for startups, there are several important considerations to keep in mind. Firstly, setting up a proper accounting system is essential. This includes selecting the appropriate accounting software, establishing chart of accounts, and implementing robust internal controls to safeguard your financial data. Secondly, understanding the financial implications of different business structures, such as sole proprietorship, partnership, or corporation, is crucial. Each structure has different tax obligations and financial reporting requirements. Lastly, tracking and categorizing expenses accurately from the beginning is vital for budgeting, tax deductions, and financial analysis. Proper documentation and record-keeping of all transactions will save time and headaches down the road.

Best Practices for Startup Accounting

Implementing best practices in accounting will streamline your financial processes and provide a strong foundation for growth. Regularly reconciling bank statements, invoices, and receipts will ensure accuracy and help detect any discrepancies or errors. Creating a budget and regularly monitoring cash flow will enable you to make informed financial decisions and manage resources effectively. Additionally, seeking professional guidance from a qualified CPA with expertise in startup accounting can provide valuable insights, ensure compliance with tax regulations, and help optimize your financial operations.

Rely On an Experienced CPA

Ready to establish a solid accounting foundation for your startup? Contact MARIELA RUIZ, CPA, PLLC at (956) 997-0067 or visit our website at www.mruiz-cpa.com to learn more about our comprehensive accounting services. Our experienced team is dedicated to helping startups and small business owners navigate the complexities of accounting and achieve financial success. Let us be your trusted partner in building a strong financial future for your startup.

Ways Small Business Owners Can Prepare For Tax Season

March 31, 2020 / admin / 0 Comments

Just the thought of tax season approaching can cause people of all kinds to stress. Whether you are self-employed or own a small business, taxes are confusing and overwhelming. If you are a small business owner, we’re here for you! Follow along with these tips to see how you can best prepare for filing!

Here are some tips:

One of the first ways you can feel prepared is by consistently keep your personal tax information separate from your business’s tax information. It is important to remember you will have to file each separately, so keeping them from getting mixed together is a great way to avoid stress later on down the line.

Another great way to prepare is by keeping track of all your business records. Ensuring your payroll and other lists detailing your expenses are all in order is a great way to feel less lost. When you can easily lay everything out, there will be less confusion! If you are struggling with understanding the types of documents needing to be saved, hiring a professional bookkeeper is the best way to ensure your confidence.

Finally, seek help with payroll! While it may seem easy enough, hiring a professional who can keep track of all your payroll expenses and documents is a great investment. Not only can you cross the worry of weekly payroll duty off your list, but also come tax season you are going to have a perfectly laid out file. You and your tax professional will be much happier with perfectly kept records from an experienced bookkeeper!

Conclusion

Tax season is unavoidable, so instead of stressing and putting off the inevitable, feel prepared! Hire a bookkeeping expert to help you year-round. Visit MARIELA RUIZ, CPA, PLLCto get started today.

MARIELA RUIZ, CPA, PLLC

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