Author: Leon Clinton

All small-business owners with one to 49 employees should have a medical plan for their business.

Sure, it’s true that with 49 or fewer employees, the tax law does not require you to have a plan, but you should.

When you have 49 or fewer employees, most medical plan tax rules are straightforward.

Here are six opportunities for you to consider:

1. Make sure to claim the federal tax credit equal to 100 percent of the required (2020) and the voluntary (2021) emergency sick leave and emergency family leave payments. You likely made payments that qualify for the credits.
2. If you have a Section 105 plan in place and have not been reimbursing expenses monthly, do a reimbursement now to get your 2022 deductions, and then put yourself on a monthly reimbursement schedule in 2023.
3. If you want to implement a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), but you have not yet done so, make sure to get that done correctly now. You are late, so you could suffer that $50-per-employee penalty should your lateness be found out.
4. But if you are thinking of the QSEHRA and want to help your employees with more money and flexibility, consider the Individual Coverage Health Reimbursement Arrangement (ICHRA). It’s got more advantages.
5. If you operate your business as an S corporation and want an above-the-line tax deduction for the cost of your health insurance, you need the S corporation to (a) pay for or reimburse you for the health insurance and (b) put that insurance cost on your W-2. Make sure the reimbursement happens before December 31 and you have the reimbursement set up to show on the W-2.
6. Claim the tax credit for the group health insurance you give your employees. If you provide your employees with group health insurance, see whether your pay structure and number of employees put you in a position to claim a 50 percent tax credit for some or all of the monies you paid for health insurance in 2022 and possibly in prior years.

If you need more insights into the opportunities described above, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• November 11, 2022

The federal government wants you to go green if you own a commercial or residential rental building.

The newly enacted Inflation Reduction Act extends and expands valuable tax credits for solar panels or other renewable energy installations and electric vehicle charger units. Also, the long-available accelerated tax deduction for commercial building energy improvements is now easier to get and potentially worth much more.

These credits and deductions are complicated and subject to new restrictions.

Business Energy Investment Tax Credit

You can claim the Business Energy Investment Tax Credit (ITC) if you install solar, wind, or other renewable energy facilities in your commercial or rental buildings.

The Inflation Reduction Act retroactively increased this credit from 26 percent to 30 percent for projects begun before 2025.

Starting in 2023, you can qualify for 10 percent bonus credits available for projects

• complying with domestic content requirements,
• located in low-income communities, or
• located in communities involved with fossil fuels.

You also can claim an additional 20 percent ITC by participating in various federal housing programs.

One more thing: the ITC is non-refundable, but it is transferable. You can sell it to an unrelated taxpayer.

The ITC above expires in 2025, to be replaced with a new technology-neutral 30 percent clean electricity ITC.

Energy Efficient Commercial Buildings Deduction

This tax deduction enables owners of commercial buildings and multifamily residential buildings of four stories or more to deduct in one year all or part of the cost of various energy improvements made as part of a plan to reduce total energy costs. Such improvements include heating and cooling systems, roofs, walls, floors, and interior lighting.

Under the old deduction, building owners had to improve a building’s energy efficiency by 50 percent.

Now, building owners have to improve energy efficiency only by a minimum of 25 percent. In addition, starting in 2023, the new law increases the deduction to $5.00 per building square foot if the owners meet prevailing wage and apprenticeship requirements. If not met, the building owner may claim only a $1.00 per square foot maximum deduction.

The old deduction was $1.88 per square foot.

The buildings deduction is complex; to get it, you’ll likely need to hire a heating and ventilating engineer, a refrigeration engineer, an illumination engineer, or other similar experts.

Electric Vehicle Charger Credit

The new law extended to 2032 the credit for installing electric vehicle charger units in commercial or rental buildings. But starting in 2023, some rules change:

• The 30 percent credit is available only for projects that comply with prevailing wage and apprenticeship rules; otherwise, it’s 6 percent.
• The credit is available only for properties in low-income or rural areas.
• The annual cap on the credit increases to $100,000 per unit.

If you want to discuss these tax credits, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• November 8, 2022

At first glance, the corporate tax rules for forming an S corporation appear simple.

They are not.

Basic Requirements

Here is what your business must look like when it operates as an S corporation:

1. The S corporation must be a domestic corporation.
2. The S corporation must have fewer than 100 shareholders.
3. The S corporation shareholders can be only people, estates, and certain types of trusts.
4. All stockholders must be U.S. residents.
5. The S corporation can have only one class of stock.

Simple, right? But what often appears simple on the surface is not so simple at all.

Don’t Forget Your Spouse

If you live in a community property state, your spouse by reason of community property law may be an owner of your corporation. This can be true whether or not your spouse has stock in his or her own name.

If your spouse is an owner, your spouse has to meet all the same qualification requirements you do. This can raise two issues:

1. If your spouse does not consent to the S corporation election on Form 2553, your S corporation is not valid.
2. If your spouse is a non-resident alien, your S corporation is not valid.

Converting an LLC to an S Corporation

Method 1. To convert your LLC to an S corporation for tax purposes, you can use a method we call “check and elect.” It’s easy—just two steps. First, you “check” the box to make your LLC a C corporation. Then, you “elect” for the IRS to tax your C corporation as an S corporation. Here’s how you take the two steps:

1. File IRS Form 8832 to check the box that converts your LLC to a C corporation.
2. Then file Form 2553 to convert your C corporation into an S corporation.

Method 2. Your LLC can skip the C corporation step and directly elect S corporation status by filing Form 2553.

Loans That Exterminate S Corporation Status

Don’t make a bad loan to your S corporation. With the wrong type of loan, you enable the IRS to treat that loan as a second class of stock that disqualifies your S corporation.

Small loans are okay. If the loan is less than $10,000 and the corporation has promised to repay you in a reasonable amount of time, you escape the second-class-of-stock trap.

Larger loans are more closely scrutinized. If you have a larger loan, your loan escapes the second-class-of-stock trap if it meets the following requirements:

1. The loan is in writing.
2. There is a firm deadline for repayment of the loan.
3. You cannot convert the loan into stock.
4. The repayment instrument fixes the interest rate so that the rate is outside your control.

If you are thinking of converting to or forming an S corporation and want to talk to me, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• November 1, 2022