Month: July 2023

I am writing today to bring to your attention a crucial aspect of business tax deductions: mileage logs.

In most court cases, taxpayers lose vehicle expense deductions because they cannot present a credible business mileage log. The IRS code forbids deductions for vehicle expenses when taxpayers cannot prove the mileage and provide an adequate record.

Failing to maintain such records could lead to deductions far less than the actual business mileage, potentially resulting in no vehicle deductions at all. In essence, having a mileage log is critical for both proprietors and corporate owner-employees.

Take the case of Jim and Martha Flake. During their IRS audit, they submitted reconstructed calendars, odometer readings, fuel receipts, credit card statements, and other documents. But they created the mileage after the fact, and it contained math errors, thus failing to establish the mileage, time, and purpose of each vehicle use.

The court looked at the Flakes’ work and denied their vehicle deductions entirely. It allowed only what the IRS allowed.

The key takeaways from this case are:

• Maintain a mileage log to substantiate your business mileage.
• Stay updated on the basic principles of tax law.
• Operate your business with proper books, checks, records, and receipts to verify income and expenses.

If you need guidance on how to keep a comprehensive mileage log or require assistance with any other tax-related matters, please do not hesitate to contact me on my direct line at 408-778-9651.

• By Leon Clinton
• July 28, 2023

Have you established a 105-HRA, Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), or Individual Coverage Health Reimbursement Arrangement (ICHRA) to reimburse your employees for medical expenses?

If so, congratulations! These HRAs are a great way to pay your employees’ medical expenses and obtain a tax deduction.

But all three types of HRAs come with a pesky IRS filing requirement: each year, you must pay a Patient-Centered Outcomes Research Institute (PCORI) fee that is used to help support the Institute.

The fee is small—currently, $3.00 times the “average number of lives covered” by your HRA during the previous plan year. There are various ways to calculate the number of lives covered.

You must pay the fee by filing Form 720 with the IRS by July 31 of the calendar year following the end of your plan year.

Paying the PCORI fee is a bit of a nuisance. But on the plus side, the fee is tax-deductible.

If you need my assistance or would simply like to discuss HRAs, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• July 24, 2023

As a small employer (fewer than 50 employees), you should consider the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) as a good way to help your employees with their medical expenses.

If the QSEHRA is indeed going to be your plan of choice, then you have three good reasons to get that QSEHRA plan in place on or before October 2, 2023. First, this avoids penalties. Second, your employees will have the time they need to select health insurance. Third, you will have your plan in place on January 1, 2024, when you need it.

One very attractive aspect of the QSEHRA is that it can reimburse individually purchased insurance without your suffering the $100-a-day per-employee penalty that generally applies to the employer that reimburses employees for individually purchased insurance. The second and perhaps most attractive aspect of the QSEHRA is that you know your costs per employee. The costs are fixed—by you.

Eligible employer. To be an eligible employer, you must have fewer than 50 eligible employees and not offer group health or a flexible spending arrangement to any employee. For the QSEHRA, group health includes excepted benefit plans such as vision and dental, so don’t offer them either.

Eligible employees. All employees are eligible employees, but the QSEHRA may exclude

• employees who have not completed 90 days of service with you,
• employees who have not attained age 25 before the beginning of the plan year,
• part-time or seasonal employees,
• employees covered by a collective bargaining agreement if health benefits were the subject of good-faith bargaining, and
• employees who are non-resident aliens with no earned income from sources within the United States.

Dollar limits. Tax law indexes the dollar limits for inflation. The 2023 limits are $5,850 for self-only coverage and $11,800 for family coverage. For part-year coverage, you prorate the limit to reflect the number of months the QSEHRA covers the individual.

If the QSEHRA is a plan of interest for you, please call me immediately on my direct line at 408-778-9651 so we can get your 2024 QSEHRA plan in place on or before October 2, 2023. I have in my arsenal the documents we can use to create both (a) the written plan and (b) the employee request for reimbursement.

• By Leon Clinton
• July 19, 2023