Tax Info Blog

House W&M Committee Passes Bill To Allow Spouse "Joint Ventures"

News Alert: today, the House Ways and Means Committee passed by voice vote a bill (H.R. 1677) which would enact several IRS reforms.  Most of the news coverage has been on the predatory lending (through RACs and RALs) and use of IRS logo provisions.  However, a provision amending partnership rules for married couples is even more important.

Self-Employed 401(k):What Is It, How Does It Work?

Q: I have a self-employed 401(k) plan.  How do I calculate my contribution limit?  Is it pre-income and pre-self employment tax?  How do I report it on the 1040?
Bryan, Somewhere USA

A: The self-employed 401(k) is one of the most powerful tax-reduction tools available to the independent entrepreneur.  As both the "employer" and the "employee," you can make a boatload of retirement plan contributions.  There are some special rules you need to observe, though...

Can S-Corporation Earnings Be Contributed to an IRA?

Q: Tax Playa, can a person who did not take any salary but have a little income from an S-corporation make an IRA contribution?
Scott, FL

A: In short, no.  IRA contributions can only be made from "earned income."  An interesting interaction here, though, can be made with the reasonable salary rules of S-corporations...

FSAs and Medical Itemized Deduction: Only One Bite at the Apple

Q: Tax Playa, could you explain the various interactions between flexible spending arrangements (FSAs) and the catastrophic medical expense itemized deduction?
John, Charlottesville VA

A: Health insurance used to be a relatively-simple proposition: you went to work and your boss paid for it.  Now, though, there are a ton of different health account, tax advantages and disadvantages, and strategies.  John asks about the interaction of two of them, the FSA and the itemized deduction for health insurance.  I'll broaden this to talk about all of them at once...

Commuting or Business Travel? The Contractor Opportunity

Q: Tax Playa, I'm a contractor with a single payer.  Can I deduct travel to business locations from my home, or is this considered commuting?
Mike

A: Mike, that depends greatly on whether or not you have a qualified home office.  If you do, then you are technically travelling from your home office to work locations.  If you don't, then your first home to business location trip is considered personal, non-deductible commuting...

Not So Fast S-Corpers: Reasonable Compensation Issues

Q: Tax Playa, I have recently opened an S-corporation and am confused about how to get money out of it.  Do I need to pay myself a salary?  If so, how do I do withholding?
Ales, Somewhere USA

A: Welcome to one of the biggest areas of the tax law that taxpayers often get wrong--the S-corporation "reasonable salary" trap.  Many people (and those selling services) want to avoid self-employment tax by using S-corps, but there are several downsides to doing so--the biggest being this salary requirement, which is under intense scrutiny by the IRS and Congress...

Barred from Using Standard Mileage?

Q: Tax Playa, I receive a 1099-MISC as I am an independent contractor for a company where I transport patients who don't have transportation or can't drive due to injury to doctors/physical therapy appointments . I'm trying to figure out if I can use the standard mileage rate because from what I'm reading you can't use it for cars for hire like a taxi...who must use actual expenses. What I want to know is can I use the standard mileage rate or must I use actual expenses based on my job description?
Mike, Somewhere USA

A: You are correct in researching that the standard mileage rate is not available for use in cars "for hire."  This includes taxis, but would also seem to capture your business...