Ohio CAT: Doing business in Ohio? Annual Ohio gross receipts exceed $150,000 including rental income? You may be subject to Ohio's Commercial Activity Tax (CAT). Although around since 2005, a soaring budget deficit, the end of both franchise & personal property taxes, and a so far underwhelming response from businesses and individuals are causing the State to aggressively seek the unregistered. Register now before the State begins coming down hard on nonfilers. Click here for more information. If you still have questions, please contact our office.
Dependents—Qualifying Child Rule Clarified:The IRS has issued a notice clarifying when an individual will not be a "qualifying child" of another taxpayer. Under IRC Sec. 152(d)(1)(D) , an individual is not a qualifying relative of the taxpayer (and thus eligible for the dependency exemption) if that individual is the "qualifying child" of any other taxpayer. The notice provides that the dependent will not be a "qualifying child" of any individual that is not required to file a tax return under IRC Sec. 6012 and either does not file a tax return or else files a return solely to obtain a refund of income tax withholding. Notice 2008-5, 2008-2 IRB.
S Corporation Shareholder-employee's Health Insurance Costs: This notice provides rules for 2% S corporation shareholder-employees (2% shareholders) to claim the Section 162(l) deduction for accident and health insurance premiums that are paid or reimbursed by the S corporation. [Editor's Note: For this purpose, a 2% shareholder is any person owning, directly or indirectly, more than 2% of the corporation's stock on any day during the tax year.] A 2% shareholder who meets the requirements of IRC Sec. 162(l) can claim the deduction if the plan providing medical care coverage is established by the S corporation, which means that the (1) S corporation pays the premiums for a policy covering the 2% shareholder (and spouse or dependents, if applicable) in the current tax year; or (2) 2% shareholder pays the premiums and is reimbursed by the S corporation in the current tax year. The S corporation must report the premiums paid or reimbursed as wages on the 2% shareholder's Form W-2 for that same year, and the 2% shareholder must report the premium payments or reimbursements as gross income on his Form 1040. Notice 2008-1, 2008-2 IRB.
Sole Proprietor Health Insurance Premiums: Taxpayer operated a grain and livestock farm, and employed his wife to care for the livestock, help with repairs, and perform other "usual and customary" farming tasks. The Tax Court held that he could deduct premiums paid to a medical reimbursement plan that covered his spouse as an employee, and himself as her family member, as ordinary and necessary business expenses under IRC Sec. 162(a) . [ Editor's Note: Although self-employed individuals can now deduct 100% of their health insurance under IRC Sec. 162(l) , a lesser percentage was deductible in the years of this case.] In so holding, the court rejected the IRS's argument that only the payments made for the medical expenses of the employee, and not payments for the medical expenses of the employee's spouse or dependents, constitute payments made pursuant to such a plan. Ralph Frahm, TC Memo 2007-351 (Tax Ct.).
Deductible Medical Expenses: The IRS ruled that the amount paid for an annual physical exam qualifies as an expense for medical care even though taxpayer is not experiencing any symptoms of an illness. Similarly, the amount paid for a full-body scan qualifies even though taxpayer is not experiencing symptoms of an illness, a physician has not recommended that the scan be done, and there are less expensive alternatives. In so ruling, the IRS notes that the scan serves no nonmedical purpose. Finally, the amount paid for a pregnancy test qualifies as a medical expense even though it tests the healthy functioning of the body rather than detect a disease. All three amounts are deductible under IRC Sec. 213(a), subject to the 7.5% floor. Rev. Rul. 2007-72, 2007-50 IRB .
Two Identification Numbers for Single Member LLCs: According to Internal Revenue Manual (IRM) 21.7.13.5.4.3, two employer identification numbers (EINs) are assigned to single member LLCs with employees because a single member LLC that is a disregarded entity (i.e. has not elected to be taxed as a corporation) can't be an employer. The owner is the employer of record, and the employment tax regulations require that the employer have an EIN. If the taxpayer chooses to calculate, report, and pay the employment taxes under the LLC's name, one EIN is assigned to the owner and the other to the disregarded entity. The IRM notes that the taxpayer/preparer must make a concerted effort not to get the two confused. Furthermore, once this choice is made, the taxpayer cannot change for 60 months without the IRS's permission.
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