4 ms·

You nailed it. When I started my own consulting business I just about fell out of my chair when my accountant said I couldn’t write off my health coverage. I pa

You nailed it. When I started my own consulting business I just about fell out of my chair when my accountant said I couldn’t write off my health coverage. I pay about $19K a year and that’s after taxes so more like $25K+.

deleted 9y ago
[deleted]
throwawaylalala 9y ago
Depends on your corporate structure;my accountant told me that the costs may make enough of a difference to justify changing the structure. Not an accountant, and not your accountant.
dexterdog 9y ago
Don't you enjoy yourself in your company? You should be able to offer full coverage if that's what you want. You just have to offer that to all of your employees, but that's probably just you.
- projectileboy 9y ago
  I can't tell if you're just joking, but assuming you're serious, the rules (US tax rules, essentially) state that you have to have at least one other "real" (i.e., non-family) employee.
  - dangero 9y ago
    They also state that if you own more than 2% of the company then there are special limitations on expensing health benefits.
akcreek 9y ago
Do you pay self-employment tax? If so you can likely deduct the cost of your medical insurance for yourself and your family. I deducted $6,157 for myself and my wife last year through my single member LLC. Line 29 on IRS form 1040 [0]. [0] https://www.irs.gov/pub/irs-pdf/f1040.pdf https://www.irs.gov/pub/irs-pdf/f1040.pdf
karmajunkie 9y ago
You need to incorporate. You can't write it off as a 1099 contractor. You CAN write it off as an employee of an LLC. There's a lot of other good reasons to incorporate as well. Use an S-corp election (as an LLC) and you can get out of paying the SE tax on a significant portion of your income. There are some limitations and you need to bill over a certain amount, but anybody who makes a six-figure income consulting should be doing so under an LLC, not as a 1099 contractor.
- zaroth 9y ago
  Actually, you can deduct health insurance expense as a self-employed (1099) filing a Schedule C, or as a member of an LLC, or as a member of an S corp.
zaroth 9y ago
Read this [1], then, consider firing your accountant and filing an amended return. [1] - https://www.irs.gov/publications/p535/ch06.html#en_US_2016_publink1000208843 https://www.irs.gov/publications/p535/ch06.html#en_US_2016_p...
- dangero 9y ago
  S-Corp greater than 2% ownership. This means I can sort of write it off, but only after the corporation providing the money through payroll which means paying tax on it upfront. Doing it that way could end up costing me money because payroll taxes are higher than corporate dividends. In general I think the point is, why can corporations just straight write off premiums for their employees when self-employed types have all these special rules to follow vs just a standard deduction?
  - didgeoridoo 9y ago
    If you're an officer in an S-Corp, you're required to pay yourself a "market rate" salary for payroll tax purposes, and cannot legally use the salary/draw distinction as a tax avoidance strategy. If you're not paying yourself a salary, the IRS gets very annoyed. If you're a sole proprietor, the tax impact should be equivalent whether you choose to take draws or salary: > Sole proprietors and members of partnerships are free to pay themselves — or otherwise take the profits out of their businesses — whenever they’d like. Payroll withholdings do not apply, but each individual essentially pays the equivalent on his or her reported income at tax time. https://quickbooks.intuit.com/r/payroll/salary-or-draw-how-to-pay-yourself-as-business-owner/ https://quickbooks.intuit.com/r/payroll/salary-or-draw-how-t...
    - dangero 9y ago
      Paying the health insurance through payroll would be in addition to the fair and reasonable salary. Say I set a fair and reasonable salary of $65,000, then I want the S-Corp to cover my health insurance $20,000 a year then I need to set payroll to $85,000. Yes, I could continue to pay myself just $65,000, but the IRS could come knocking and say, "you said you paid for health insurance through S-Corp payroll, so that means you only gave yourself a $45,000 salary which is not fair and reasonable.
ryanmarsh 9y ago
You need to incorporate as an S corp and hire yourself W2. Then pay your "employees" 100% medical that way it's a cost for the company and therefore reduces the company's profit, meanwhile you're not getting taxed to pay insurance premiums. Going from being an employee to being 1099 and SE is still getting fucked on taxes, just in a different position. If you're serious about freelancing, your income should be split between a W2 and a K1. I am not a CPA. This is what I pay him to do for me.

deleted 9y ago

[deleted]

throwawaylalala 9y ago

Depends on your corporate structure;my accountant told me that the costs may make enough of a difference to justify changing the structure. Not an accountant, and not your accountant.

dexterdog 9y ago

Don't you enjoy yourself in your company? You should be able to offer full coverage if that's what you want. You just have to offer that to all of your employees, but that's probably just you.

projectileboy 9y ago
I can't tell if you're just joking, but assuming you're serious, the rules (US tax rules, essentially) state that you have to have at least one other "real" (i.e., non-family) employee.
- dangero 9y ago
  They also state that if you own more than 2% of the company then there are special limitations on expensing health benefits.

akcreek 9y ago

Do you pay self-employment tax? If so you can likely deduct the cost of your medical insurance for yourself and your family. I deducted $6,157 for myself and my wife last year through my single member LLC. Line 29 on IRS form 1040 [0]. [0] https://www.irs.gov/pub/irs-pdf/f1040.pdf https://www.irs.gov/pub/irs-pdf/f1040.pdf

karmajunkie 9y ago

You need to incorporate. You can't write it off as a 1099 contractor. You CAN write it off as an employee of an LLC. There's a lot of other good reasons to incorporate as well. Use an S-corp election (as an LLC) and you can get out of paying the SE tax on a significant portion of your income. There are some limitations and you need to bill over a certain amount, but anybody who makes a six-figure income consulting should be doing so under an LLC, not as a 1099 contractor.

zaroth 9y ago
Actually, you can deduct health insurance expense as a self-employed (1099) filing a Schedule C, or as a member of an LLC, or as a member of an S corp.

zaroth 9y ago

Read this [1], then, consider firing your accountant and filing an amended return. [1] - https://www.irs.gov/publications/p535/ch06.html#en_US_2016_publink1000208843 https://www.irs.gov/publications/p535/ch06.html#en_US_2016_p...

dangero 9y ago
S-Corp greater than 2% ownership. This means I can sort of write it off, but only after the corporation providing the money through payroll which means paying tax on it upfront. Doing it that way could end up costing me money because payroll taxes are higher than corporate dividends. In general I think the point is, why can corporations just straight write off premiums for their employees when self-employed types have all these special rules to follow vs just a standard deduction?
- didgeoridoo 9y ago
  If you're an officer in an S-Corp, you're required to pay yourself a "market rate" salary for payroll tax purposes, and cannot legally use the salary/draw distinction as a tax avoidance strategy. If you're not paying yourself a salary, the IRS gets very annoyed. If you're a sole proprietor, the tax impact should be equivalent whether you choose to take draws or salary: > Sole proprietors and members of partnerships are free to pay themselves — or otherwise take the profits out of their businesses — whenever they’d like. Payroll withholdings do not apply, but each individual essentially pays the equivalent on his or her reported income at tax time. https://quickbooks.intuit.com/r/payroll/salary-or-draw-how-to-pay-yourself-as-business-owner/ https://quickbooks.intuit.com/r/payroll/salary-or-draw-how-t...
  - dangero 9y ago
    Paying the health insurance through payroll would be in addition to the fair and reasonable salary. Say I set a fair and reasonable salary of $65,000, then I want the S-Corp to cover my health insurance $20,000 a year then I need to set payroll to $85,000. Yes, I could continue to pay myself just $65,000, but the IRS could come knocking and say, "you said you paid for health insurance through S-Corp payroll, so that means you only gave yourself a $45,000 salary which is not fair and reasonable.

ryanmarsh 9y ago

You need to incorporate as an S corp and hire yourself W2. Then pay your "employees" 100% medical that way it's a cost for the company and therefore reduces the company's profit, meanwhile you're not getting taxed to pay insurance premiums. Going from being an employee to being 1099 and SE is still getting fucked on taxes, just in a different position. If you're serious about freelancing, your income should be split between a W2 and a K1. I am not a CPA. This is what I pay him to do for me.