Individuals covered by high-deductible health plans became eligible Jan. 1 for health savings accounts (HSAs), which allow for tax-free savings toward medical expenses. Amounts deposited in HSAs earn interest tax free, and distributions are not taxed if the funds are used to pay qualifying medical expenses. Contributions to HSAs by employers are not taxed to either the employer or employee. For more information, see Notice 2004-2 at www.irs.gov.
Equipment Leasing Association of America says a provision in the U.S. Treasury Department’s proposed budget for fiscal 2005 would adversely affect tax deductions available for various types of property leased by tax-exempt entities, such as schools, transportation authorities or hospitals. Property affected includes vehicles leased to federal, state and local governments and property used to provide transportation services to a tax-exempt entity, ELA says. For more information, visit www.elaonline.com.
The National Accounting and Finance Council of the American Trucking Associations will hold its 2004 meeting June 27-29 at the Adolphus in Dallas. For more information, contact NAFC at [email protected] or (703) 838-8820.
Small Business Administration said last month that it may be forced to close its 7(a) loan program unless Congress promptly enacts the agency’s fiscal 2004 appropriation.
Owners of S corporations have long known that funds taken out as salary incur payroll taxes but that distributions of profits or dividends do not. But the Internal Revenue Service has recently intensified scrutiny in this area in an effort to minimize perceived abuses. After all, lots of tax funds are at stake for the U.S. Treasury.
The IRS has won a round or two in this fight. In fact, the Tax Court has recently tagged trucking as well as other companies. See, for example, Mike J. Graham Trucking, Inc. v. Commissioner (T.C. Memo 2003-49) or Specialty Transport & Delivery Services, Inc. v. Comm. (T.C. Memo 2003-51).
What’s at stake for the trucking company owner? Assume an annual payout of $100,000 for each owner who also is active in the business. The difference between classifying those funds as dividends as opposed to pay is about $13,700. Multiply that times three or more back years, and add penalties and interest and you could quickly have an audit exposure exceeding $50,000 for each owner active in the business.
