Archives for October 2024

The ABCs of an HSA for Your Small Business

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Like any savvy business owner, you may be on the hunt for new ways to make every dollar every count.

If you’re looking for an opportunity to reduce your small business’s taxable income — while offering a strong benefits package to attract and retain talented workers — consider the benefits of offering a Health Savings Account (HSA).

An HSA is a tax-advantaged account that allows participating employees to make tax-free contributions and withdrawals to put toward qualified medical expenses such as:

  • Copays
  • Prescriptions
  • Over-the-counter medications, like acetaminophen or acne medication
  • Vaccinations or flu shots
  • Nutritional supplements and vitamins
  • Durable medical equipment such as wheelchairs and crutches

Your business can set up an HSA for qualifying employees who are eligible for your company’s benefits plan. You can fully or partially fund employee accounts or let employees fund them with salary-reduction contributions.

Considering adding an HSA to next year’s benefits package? Here’s a quick rundown

HSAs are generally flexible and versatile, offering the following tax-saving benefits:

  1. Employers’ contributions are tax-free to their employees
  2. Employees can subtract their contributions from their taxable salaries, equating to a tax deduction
  3. Employees can make tax-free withdrawals to cover qualified medical expenses

HSA accounts may be funded by your business, by employees through salary deductions or through a combination of both. To be eligible for HSA contributions (made by the employer or the employee), your employees must be covered by a qualifying high-deductible health plan (HDHP) and have no other general health coverage.

For employees, eligibility for making HSA contributions isn’t dependent on their level of income. Everyone who’s covered by a qualifying HDHP can have an HSA and enjoy the tax benefits.

As an employer, you can make deductible HSA contributions for your employees. Employer-paid contributions are exempt from federal income tax, as well as Social Security, Medicare and Federal Unemployment Tax Act (FUTA) taxes — a financial benefit for your business.

HSA distributions used to pay qualified medical expenses of the participating employee, their spouse and their legal dependents are also federal-income-tax-free. If no withdrawals are made, an HSA may be used to build up a substantial medical expense reserve fund that can be put aside for the future as needed, all while earning tax-free income.

A win-win for your business?

At Magone & Company, we can help you determine if offering an HSA is a tax-efficient strategy for your small business. Our goal is to help minimize your tax liability now and in the future. Give us a call today at (973) 301-2300.

 

This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your unique circumstances.

Did Your Hobby Just Become a Business? See What the IRS Has to Say

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Have a hobby that’s become a passion? Maybe you’ve been crafting decorative wreaths to sell at local street fairs. Or perhaps you turned your love of fashion into a small side hustle, reselling thrifted treasures or styling your friends for big events.

Anytime money is exchanged for goods or services, the IRS will expect their cut. With part-time gigs becoming a more common way to generate income, here’s what you need to know from an IRS standpoint.

Defining hobby vs. business

The IRS considers a hobby any activity that’s engaged in primarily for pleasure, recreation or personal fulfillment — not for profit. But there are exceptions. For example, if you occasionally sell your homemade quilts at a yard sale and make a few bucks, it’s not typically considered taxable business income.

On the other hand, a business is an endeavor undertaken with the intention of making a profit. The key here is your intent.

You might not be profitable yet, but if your goal is to make money, the IRS may consider this a business. Other factors indicative of a business (according to the IRS) include whether or not you:

  • Maintain complete and accurate books and records
  • Put time and effort into the activity, demonstrating a plan to make it profitable
  • Depends on the income generated from the activity
  • Have been successful in making a profit in similar activities in the past
  • Expect to make a future profit

Understanding the implications

Whether it’s a hobby or business, maintaining thorough records is crucial for potential dealings with the IRS. For hobbies, keep track of any income earned, especially if you’re generating sales through a payment app. If you receive a Form 1099-K, you’ll need to report the earnings.

 For businesses, you’ll also want to record and report all income and expenses. You may also make applicable deductions. Keeping meticulous records will not only help at tax time but can also provide valuable insights into your business’s financial health. Be sure to regularly review your finances and adjust your strategies as needed.

For fun and profit?

The last thing any taxpayer wants is a surprise letter from the IRS. As your hobby grows, or if you’re considering turning your passion into something more, get up to speed with the tax implications. The experts at Magone & Co can help. For tax planning guidance, give us a call today at (973) 301-2300.

 

This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your tax situation.