As the year comes to a close, it’s a good time to review a few rules the IRS has in place for your W2 as an S-Corp officer (owner). The Tax Cuts and Jobs Act changed a few items, so please read this carefully. We don’t want you to miss any business deductions for 2019!
Our payroll customers can use the link to the right to report your year-end information and our team will update your 2019 W2 to ensure you don’t miss out on these key deductions.
Health Insurance Premiums
Do you or your business pay for health insurance that isn’t provided by a different employer (such as your spouse’s work)? If so, you’re entitled to the Self-Employed Health Insurance (SEHI) adjustment on your personal tax return. This reduces your taxable income but needs to appear on your W2 for you to use the adjustment.
What types of insurance count? If we don’t have it listed below, it cannot be included as SEHI:
Medical (Medicare, too!)
Accident Plans (Aflac-type, not life)
Now is the perfect time to add health insurance premium payments to your W2! Add the total amount paid in monthly premiums for 2019 and report these to your payroll processor. Our payroll clients can use the form below to submit this information.
Food Per Diem
Prior to the Tax Cuts and Jobs Act, owners of S-Corporations could deduct this expense either as an actual reimbursement from the business or directly on the business tax return without reimbursement. This is no longer true for S-Corp owners. The IRS clarified their position to confirm the updated tax code [IRC 62(a)(1)] means per diem expenses need to be reimbursed through payroll to be claimed as an expense on the business tax return.
Although this is new, we can adjust before the end of the year to ensure you capture your per diem expenses. Our recommended strategy is to recharacterize your personal distributions as per diem reimbursements in the following way:
Calculation 1: Determine how much money you have personally drawn from your business’ bank outside of payroll wages. This is your total distributions received from your business.
Calculation 2: How many days of per diem do you have for 2019? Multiply this by $66/day and keep this with your tax files.
If your personal distributions are HIGHER THAN your per diem expense, report your total per diem to your payroll processor. If your personal distributions are LOWER THAN your per diem expense, contact your payroll processor to request the final pay period(s) to be adjusted. Some adjustments to consider include:
Option 1: Stop paying yourself wages until per diem is fully reimbursed. The IRS only enforces the “reasonable wage” rule if you take personal distributions. Reimbursing yourself for expenses is not the same as distributions when you have an accountable plan in place.
Option 2: If you cannot pay yourself the full amount of per diem, characterize the remaining balance as a loan to your business that will be paid off in 2020. This is an item to bring to your accountant’s attention to confirm the loan is captured on your tax return and set up correctly.
Business Mileage on your Personal Vehicle
Similar to the earlier categories, business mileage on your personal vehicle needs to be reimbursed through your payroll processor. The 2019 IRS mileage rate is $0.58 per mile.
Be sure to have a record of the following in a logbook:
Beginning and ending odometer reading