Tax

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

Here’s some crucial information on how to document expenses during business travel.

Corporation or proprietorship? If you operate as a corporation, the corporation should reimburse you for the travel expenses or pay for them directly. Remember, you can’t deduct employee business expenses on Form 1040 anymore due to changes brought by the Tax Cuts and Jobs Act for 2018–2025.

Tax diary for business travel? Although not obligatory, keeping a timely record of your business travel expenses is essential. This record should prove each expenditure’s amount, time, place, and business purpose.

Travel meals versus other travel expenses? Due to specific legislation, tax deductions for travel meals are cut by 50 percent, so you separate them from other travel expenses.

Receipts. You must retain a receipt or similar documentary evidence for every lodging expense and any other travel expense over $75. A receipt should establish the expenditure’s amount, date, place, and essential character.

Credit card statements and canceled checks. These can’t serve as a receipt, as they only prove payment, not the purchase. Both receipt and payment proof are required to substantiate travel expenditures.

Timely kept record. The IRS considers a weekly or more frequent log of your activities and expenses as a timely kept record.

$75 rule and cheating. Even if you don’t need a receipt for a travel expense under $75, keeping one provides a more robust and reliable proof of the expenditure.

What are travel expenses? They include costs of travel to your business destination and costs for sustaining life at the destination (lodging, meals, communication, laundry, etc.)

Submitting expenses to your corporation. If you operate your business as a corporation, you should submit your expenses for reimbursement under an “accountable plan” that conforms to IRS rules. You can submit an expense report along with the supporting receipts for reimbursement.

I hope this information provides helpful guidance on documenting and managing your business travel expenses effectively. If you have questions or need additional clarification, please do not hesitate to call me on my direct line at 408-778-9651.

• By Leon Clinton
• July 14, 2023

As an integral part of our commitment to keep you updated on matters that could affect your financial decisions, we want to inform you of recent changes and available incentives on electric vehicles at both the federal and state levels.

While lawmakers extended the federal tax credit for personal-use electric vehicles through 2032, they restricted it to vehicles that comply with domestic battery sourcing rules. The battery rules limit the number of electric vehicles that qualify for the full $7,500 federal tax credit.

Despite this, there’s encouraging news as most states offer additional incentives to residents who switch to electric vehicles.

The incentives vary widely and may include reduced vehicle licensing fees or sales taxes, HOV lane privileges, reduced or waived vehicle inspections, and financial incentives for purchasing home chargers. Moreover, many states’ local electric utilities provide rebates to customers who buy electric vehicles, ranging from $100 to $1,500 or more.

Currently, eight states—California, Colorado, Connecticut, Maine, Maryland, Massachusetts, New York, and Pennsylvania—are leading the electrification efforts by offering their own financial incentives to residents who purchase or lease electric vehicles.

The incentives are usually in the form of rebates, typically ranging from $1,000 to $2,000, but can be as much as $7,500 for lower-income residents in some states. Unlike the federal tax credit, state rebates are not subject to strict domestic sourcing restrictions.

But it’s important to note that each state’s electric vehicle rebate program is unique and often requires residency in the state for two or three years after your EV purchase or lease. States may also impose income caps and price restrictions on qualifying electric vehicles. Therefore, we strongly encourage you to carefully review your state’s program before purchasing an electric vehicle.

If you are considering an electric vehicle, the rebates and tax credits can help reduce your cost.

If you want my help with an electric vehicle purchase, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• July 10, 2023