Tax

Do you have a health savings account (HSA)? 

If so, you have one of the best tax-advantaged accounts. HSAs provide a unique triple tax benefit: 

• Pre-tax contributions are tax-deductible. 
• The money in the HSA is invested and grows tax-free (just like in an IRA). 
• Withdrawals to pay medical bills are tax-free. 

Indeed, there is only one thing wrong with HSAs: you cannot make contributions after you enroll in Medicare (usually at age 65). 

If you love HSAs as much as we do, you probably would like to continue contributing to your HSA after age 65. Here’s good news: some people can do so until they are almost 70. 

Not everyone can do this, but if you can, you should consider it seriously. You may be able to make after-age-65 HSA contributions of more than $42,725.

You can continue your HSA so long as three things remain true:

1. You are (or your spouse is) covered under an employer-provided high deductible health plan (HDHP).
2. You have no other health coverage.
3. You are not enrolled in Medicare.

Your (or your spouse’s) health plan must be a large employer plan for 20 or more employees. This eliminates you if you’re self-employed or working for a small employer, unless you’re covered by your spouse’s qualifying large employer plan.

You must not enroll in Medicare when you reach age 65. Once you enroll in Medicare, you can’t make any more HSA contributions.

In addition to not enrolling in Medicare at age 65, you must not apply for Social Security. When you enroll in Social Security, you automatically enroll in Medicare and can no longer contribute to your HSA. 

You can delay collecting Social Security until the month you turn 70. Doing so enables you to make HSA contributions and increases the Social Security benefits you’ll receive when you collect them.

You must start collecting Social Security the month you turn 70. This means you won’t be able to contribute to your HSA past age 70. In fact, you’ll have to stop contributing at least six months before you apply for Social Security because your Part A Medicare coverage is deemed to begin six months before the date you apply. 

All this means you’ll be able to contribute to your HSA for a maximum of four and one-half years after you turn 65. This will amount to over $42,725. The exact amount depends on future inflation adjustments to HSA contributions. Of course, you could stop contributing to your HSA sooner if you wish.

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

• By Leon Clinton
• October 22, 2024

As you may be aware, the qualified business income (QBI) deduction introduced by the Tax Cuts and Jobs Act provides a valuable tax-saving opportunity for business owners like yourself. 

Unfortunately, the QBI benefit expires after 2025, so there is a limited window of time to maximize this deduction.

The QBI deduction can be as much as 20 percent of qualified business income for eligible business entities, including sole proprietors, partnerships, S corporations, and certain LLCs. However, there are limitations, particularly for high-income earners or those in specified service trades or businesses (where the tax code for high-income phases out the deduction completely).

To help you make the most of this deduction, I recommend considering the following strategies:

• Business aggregation. If you own multiple businesses, combining them for QBI purposes may increase your deduction.
• Carefully manage depreciation. Adjusting your approach to depreciation deductions can impact your taxable income and QBI.
• Review retirement contributions. Large deductible retirement plan contributions can reduce your QBI deduction.
• Filing separately. In certain cases, filing as “married filing separately” may result in a higher QBI deduction, but it requires careful evaluation.

Consider the above strategies to maximize the QBI deduction before it sunsets in 2025.

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

• By Leon Clinton
• October 18, 2024

The clock continues to tick. Here are the upcoming deadlines for filing your Business Ownership Information (BOI) reports with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).

Deadlines

If your business existed as of January 1, 2024, you must file your BOI report by January 1, 2025.

If you created your business in 2024, you have 90 days from the date of filing with your state’s Secretary of State to submit your BOI report.

Entities Required to File 

All limited liability companies (LLCs) and corporations must file. For example, if you own multiple LLCs, each requires a separate BOI report.

Penalties for Non-compliance

Failure to file on time can result in significant penalties, including fines of $591 per day, a potential $10,000 criminal penalty, and up to two years in prison.

Recent Updates from FinCEN

Companies that ceased to exist before January 1, 2024, are not required to file a BOI report if they completed the dissolution process before that date.

Companies created or still existing on or after January 1, 2024, must file a BOI report, even if they ceased operations before their filing deadline.

Special Considerations for Disregarded Entities

Disregarded entities, for U.S. tax purposes, must also file a BOI report using a valid taxpayer identification number (TIN), such as an EIN, SSN, or ITIN.

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

• By Leon Clinton
• October 15, 2024