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3 Replies Last post: Jan 31, 2009 5:32 PM by dublincpa

Tricky Tax Question

Jan 31, 2009 2:25 PM

eviltwin 1 posts since
Jan 31, 2009

I have an LLC (wife and myself are members) and we have decided to make my wife a W-2 employee in order to deduct 100% of all medical expenses (not just premiums) under a Section 105 plan.

The LLC has a SIMPLE IRA as well.

We'd like her to be able to contribute $5,000 to her SIMPLE IRA.

There are a total of about $11,000 in medical expenses.

I'm aware that the medical expense reimbursement is not considered cash compensation.

How much cash W-2 wages do I need to pay my wife in order to be kosher? Does it need to be at least the amount of her IRA contribution? In the past, she just had an owner/member draw from which she made her contribution but now that she is an official W-2 employee (or soon to be), I'm concerned that we need to be a lot more buttoned-down about this.

Thanks in advance.

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LUCKIEST 7,935 posts since
Aug 6, 2007

1. Re: Tricky Tax Question Jan 31, 2009 3:59 PM

Tricky Tax Question

Really hate to give tricky answers to Tricky Tax Question

When I do not know who you are.

Go to Members page and share some info

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DomainDiva 1,732 posts since
Oct 10, 2007

2. Re: Tricky Tax Question Jan 31, 2009 4:38 PM

This I believe is a tax question for your accountant.

It seems as though you are trying to implement an end-of-year tax strategy after looking at the end of year numbers.

Tax strategies need to be addressed at the beginning of a fiscal year, not at the end.

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dublincpa 165 posts since
Jan 29, 2008

3. Re: Tricky Tax Question Jan 31, 2009 5:32 PM

There are a couple different issues. Either the H/W LLC is a partnership or you have elected C Corp or S Corp tax treatment.

If a pship, partners (members) can't have W-2s and are ineligible for section 105 medical plan benefits.

If an S Corp, you should likely both have W-2s. For both of you, Sec 105 benefits end up being added to box 1 of W-2 and not deductible on 1040. It helps achieve reasonable comp, but there is no net deduction.

If a C Corp, you should both likely have W-2s and both of you would be eligible would be eligible for W-2s.

You may have painted yourselves into a corner, but maybe not. You may just have thought you set things up a certain way. With a little help, your memory might be jogged about how you actually set them up. ; )

I am not sure what state you are in or whether you are actual attorneys or do some other form of legal work. Please let me know if you need assistance.

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ForumsTaxes and Payroll

This Question is Possibly Answered

Tricky Tax Question

Jan 31, 2009 2:25 PM

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