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Use Your Business Entity to Create a Tax-Free Educational Assistance Program

July 13, 2017

We all know the cost of higher education is skyrocketing. We want to give you a tax strategy that will work for your kids who are age 21 and older. They may be entering MBA programs, law school, or medical school. Or, perhaps your child is entering college later in life.

Did you know your business could pay up to $5,250 per year for educational assistance? It can, and it's simply wonderful. This education assistance is deductible to your business as a normal and necessary business expense. This means tax savings for you and at the same time, the assistance is a non-taxable fringe benefit to your employees, including your adult children who work for you. An educational assistance program pays for typical things such as tuition, fees, books, and supplies. It does not cover meals, lodging, and transportation. 

Educational Assistance Program Questions 

Kaiser Tax is often asked if educational assistance needs to relate to your business. That’s another wonderful part of this program: No, it does not. Let's say you own a retail store and your daughter is going to medical school. Under a qualified educational assistance program, your company can pay $5,250 per year for her medical schooling. The educational assistance program allows you to pay for classes that have nothing to do with your business.

Kaiser Tax also gets asked how many hours per year does a child need to work in your business to be eligible for this benefit. The good news is the Internal Revenue Code does not require your child to work a certain number of hours before they can become eligible. This means your child can work for you part time and still be eligible for this benefit.  

Educational Assistance Program Requirements

This all might sound too good to be true. You hire your kids, you pay them to work for you, and you get to pay $5,250 tax-free for education. You must think there are some requirements or pitfalls, and you are correct. There are some.

At the company level, educational assistance is a qualified plan. There must be a written plan that spells out the benefit and who is eligible. The benefit must be offered to all “eligible” employees. You must consider the number of employees who might be eligible and what the potential costs may be to offer assistance to all of them. 

If that cost is still favorable, there are several important requirements regarding your kids. Your child must be 21 years or older and a legitimate employee of your business. They cannot be more than a 5 percent owner of your business, and they cannot be your dependent for tax purposes. That's why these programs work best for children who are a little older and on their own.

If you can jump through these hoops, an educational assistance program is a great way to help your kids with higher education costs in the most tax-favored way possible. While this is a great strategy to help with the education costs for your kids, remember that everybody loves tax-free benefits. An educational assistance program is a wonderful recruitment and retention tool for other employees. To get help on your business’s educational assistance program, contact Kaiser Tax today.

 
 
 
5 Tax Deductions You’re Probably Missing When You File Your Business Tax Return
May 16, 2017
 
For self-employed individuals, tax time is a complicated time, even when you’re used to wearing all the hats at the office. That’s why we always recommend getting a CPA’s help during tax season and throughout the year. Here are five of the most common deductions we see self-employed professionals miss when they file their own tax returns.
 
1. The Home Office Deduction
Professionals new to working from home are always eager to take the home office deduction.  Good news, if you use at least a portion of your home for administrative purposes, you likely will qualify.
 
If you do qualify for this valuable deduction, you can take it two different ways. The traditional method allows you to deduct a percentage of your actual home expenses, based on square footage. The simplified method is more straightforward: you can deduct $5 per square foot of your home office, up to $1,500.
 
S-corp and C-corp shareholders also have some options to take advantage of home office expenses as well.
 
2. Business Mileage 
If you’re self-employed, each mile you spend on the road for your business earns you a 53.5-cent deduction for 2017. If you track your mileage, this can add up to substantial savings over the course of the year. There are many great apps out there that make this a breeze.
 
3. Accelerated Depreciation and Bonus Depreciation
Accelerated depreciation, aka the Section 179 tax deduction, saves you money on purchases of tangible business property, from software to heavy machinery. If you’ve purchased or financed certain equipment for your business in 2016, ask your tax preparer about the Section 179 deduction. You can claim up to $500,000 in deductions for up to $2 million spent on equipment.
 
4. Health Insurance Premiums
If you pay for your own healthcare as a self-employed professional, partner in a business, or as an owner of an s-corporation, you can deduct the amount you’ve personally paid in health insurance premium. This is one of the most commonly missed deductions.  
 
5. Business Use of Cell Phones and Internet
If you’re self-employed or pay personally for your cell phone and internet, you can likely deduct at least a portion of your bill. Ask your tax preparer if you qualify. 
 
Not sure if you qualify for any of these commonly missed deductions? Kaiser Tax can help you understand all the deductions you’re entitled to. For help on your 2016 tax return, contact us today.
 
 

 

 

 

 

 

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Lakeville, MN 55044

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Email: taxes@kaisertax.com

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