Author: Leon Clinton

If you operate a sole proprietorship or a single-member LLC taxed as a proprietorship and your spouse is your only eligible employee, you can take advantage of tax-free health insurance reimbursements while reducing your tax liability.

Key Tax Benefits

By reimbursing your employee-spouse for health insurance and medical expenses, you can achieve up to four tax benefits:

1. Tax-free benefit for your spouse – The reimbursement is not taxable income for your spouse.
2. Avoid the $100-a-day penalty – Small businesses with one employee can legally reimburse individual health insurance without triggering Affordable Care Act penalties.
3. Business deduction – Your proprietorship deducts the full reimbursement as a business expense, reducing income and self-employment taxes.
4. Potential Premium Tax Credits – If your household income qualifies, your spouse may still receive government subsidies for health insurance purchased through an exchange.

How the Plan Works

To ensure full compliance and maximize tax benefits, you should

• put the reimbursement plan in writing under IRS Regulation Section 1.105-11(b);
• make it a family plan that covers you, your spouse, and your dependents; and
• require your spouse to submit medical expenses monthly.

If you have no other employees and your spouse actively works in your business, this is a simple and effective way to reduce taxes while covering your family’s medical costs.

If you want to discuss this medical plan, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• March 4, 2025

A common question among business owners is how to pay themselves from their businesses properly. The correct method depends on your business structure, so I wanted to give you this quick guide to help you navigate this issue.

Sole Proprietors and Single-Member LLCs

• You cannot be on payroll. Instead, you take owner’s draws as needed.
• You report net earnings on Schedule C of your personal tax return.
• You pay self-employment taxes (15.3 percent) on self-employment net income.

Partnerships and Multimember LLCs

Partners cannot receive W-2 wages. Instead, they receive:

• guaranteed payments for services, taxed as income and subject to self-employment taxes
• profit distributions, which are generally subject to self-employment tax (except for passive limited partners)

Cash withdrawals are made through partner draws or profit distributions per the partnership agreement.

S Corporations

• You must pay yourself a reasonable salary as an employee via W-2 wages, which are subject to FICA taxes (15.3 percent, split between you and the corporation).
• Any additional profits are taxed to you personally but can be distributed tax-free.

C Corporations

The corporation pays taxes at a flat 21 percent rate.

You can receive compensation in two ways:

• W-2 wages, subject to payroll taxes
• dividends, which are taxed twice—once at the corporate level and again at your personal level

If you want to discuss how your business pays you, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• February 27, 2025

If you are considering purchasing a business vehicle, you may be eligible for significant tax deductions, especially when combined with a qualifying home office. Here’s how:

Heavy Vehicle Deductions

In 2025, businesses can take advantage of:

• Section 179 expensing – Deduct up to $1,250,000 of qualifying business equipment, including heavy vehicles. SUVs are subject to a $31,300 limit, while pickups and vans meeting specific criteria are not.
• Bonus depreciation – Claim 40 percent first-year depreciation on a qualifying heavy vehicle.
• Business-use requirement – You must use the vehicle more than 50 percent for business to qualify for these deductions.

A “heavy” vehicle has a gross vehicle weight rating (GVWR) of over 6,000 pounds. Certain SUVs, pickups, and vans qualify, but lighter vehicles are subject to much lower annual depreciation limits.

Home-Office Deductions

A deductible home office that meets the principal place of business test converts commuting miles into business miles, making it easier to meet the more than 50 percent business-use test. 

For your home office to qualify as your tax code–defined principal office, you must use it regularly and exclusively for your business, and the home office must serve as

• your primary income-generating space, or
• the location where you perform substantially all your administrative tasks.

Example of Tax Savings

A $90,000 heavy SUV used 100 percent for business could generate $61,824 in first-year deductions, while with a qualifying pickup truck, you could deduct the entire $90,000 in Year One under Section 179.

For Corporate Owners

If you own the vehicle personally, but operate as a corporation, ensure your corporation reimburses you for business use to capture the full tax benefit.

If you want to discuss vehicle and/or home office deductions, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• February 25, 2025