Client Letter - What this idea is about  

Generally business insurance is deductible.  There are variances for owners of the business, cash value life insurance, disability insurance, and the self-employed.

Engagement Status Letter 

You have not engaged Bob Parrish CPA PC, Bob Parrish CPA, pro1040, Consulting on line, any related parties, or the ISP to perform any services for you or offer you advice.  This entire site is for educational or informational purposes only.   You are not to use the forms, concepts, strategies, or knowledge without assistance from a professional.   The author, the corporation, the ISP, Bob Parrish CPA, Bob Parrish CPA, P.C. or other parties related to those or this site do not guarantee or warrantee in any manner the suitability, usefulness, accuracy, timeliness, or results of any portions of this site, nor the links contained in this site which link to other areas.   At times, information is taken from other sources and is believed to be accurate, but no verification or confirmation is performed.  Furthermore, if any federal or state law invalidates a portion of this disclaimer, the other portions still apply.   In addition, any allegations or actions are restricted to arbitration only and must be arbitrated by the Better Business Bureau in Sarasota Florida.  Reading of these pages constitutes complete acceptance and agreement with all disclaimer provisions on all pages of this site. ....... Thursday, February 22, 2007 11:45 AM  

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Learning Objectives (What You Asked) 

YOUR QUESTION(S)

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What You Will Need  

Plain English Analysis What it does, Why it works - The Answer, Alternatives  

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• Plain English Analysis - Your Answers
  • What it Does
  • Why or How it works
  • Alternatives
  • Cost v. Benefits Analysis

YOUR ANSWERS

What it does, Explanation of this topic and how it may affect you:

Deductible Premiums

You can generally deduct premiums you pay for the following kinds of insurance related to your trade or business.

1. Fire, theft, flood, or similar insurance.
2. Credit insurance on losses from unpaid debts.
3. Group hospitalization and medical insurance for employees, including long-term care insurance.
   1. If a partnership pays accident and health insurance premiums for its partners, it can deduct them as guaranteed payments made to the partners.
   2. If an S corporation pays accident and health insurance premiums for its shareholder-employees, it can deduct the premiums.

    

4. Liability insurance.
5. Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients.
6. Workers' compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault.
   1. If a partnership pays workers' compensation premiums for its partners, it can deduct these amounts as guaranteed payments to the partners.
   2. If an S corporation pays the workers' compensation premiums for its shareholder-employees, it can deduct these amounts.
7. Contributions to a state unemployment insurance fund. You can deduct these contributions as taxes if they are considered taxes under state law.
8. Overhead insurance. This insurance pays you for business overhead expenses you have during long periods of disability caused by your injury or sickness.
9. Car and other vehicle insurance. This insurance covers vehicles used in your business for liability, damages, and other losses. If you operate a vehicle partly for personal use, you can deduct only the part of your insurance premiums that applies to the business use of the vehicle. If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums.
10. Life insurance covering your officers and employees if you are not directly or indirectly a beneficiary under the contract.
11. Use and occupancy and business interruption insurance. This insurance pays you for lost profits if your business is shut down due to a fire or other cause.

Health Insurance Deduction for the Self-Employed

You can deduct 60% of the amount paid during 1999 for medical insurance and qualified long-term care insurance for yourself and your family if you are one of the following.

• A self-employed individual.
• A general partner (or a limited partner receiving guaranteed payments) in a partnership.
• A shareholder owning more than 2% of the outstanding stock of an S corporation.

You are allowed this deduction whether you paid the premiums yourself or your partnership or S corporation paid them and you included the premium amounts in your gross income. Take this deduction on line 28 of Form 1040.

Percentage increases after 2001. For tax years beginning after 2001, the deductible percentage of your health insurance premiums gradually increases. The increases are shown in the following table.

For Tax Years Beginning in:	Deductible Percentage
1999 through 2001	60%
2002	70%
After 2002	100%

Long-term care insurance. If you pay the premiums on a qualified long-term care insurance contract for yourself, your spouse, or your dependents, you can include those premiums when figuring your deduction. But you can include only the lesser of the following amounts.

1. The amount you pay.
2. The amount shown below.
   1. Age 40 or less -- $210
   2. Age 41 to 50 -- $400
   3. Age 51 to 60 -- $800
   4. Age 61 to 70 -- $2,120
   5. Age 71 and above -- $2,660

Use your age at the end of the tax year.

Long-term care insurance contract. A long-term care insurance contract is any insurance contract that only provides coverage of qualified long-term care services. The contract must meet all the following requirements.

• It must be guaranteed renewable.
• It must provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract may be used only to reduce future premiums or increase future benefits.
• It must not provide for a cash surrender value or other money that can be paid, assigned, pledged as collateral for a loan, or borrowed.
• It generally must not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses.

Qualified long-term care services. Qualified long-term care services are:

• Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and
• Maintenance or personal care services.

Chronically ill individual. A chronically ill individual is a person who has been certified as one of the following.

• An individual who, for at least 90 days, is unable to perform at least two activities of daily living without substantial assistance due to loss of functional capacity. Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence.
• An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.

Self-Employed Health Insurance Deduction Worksheet  Self-employed Health Insur

Limits. You cannot deduct an amount more than your net earnings from the trade or business in which the medical insurance plan or long-term care insurance plan is established. If the business in which the insurance plan is established is an S corporation, you cannot deduct more than your wages from the S corporation.

Other coverage. You cannot take the deduction for any month if you were eligible to participate in any employer (including your spouse's) subsidized health plan at any time during that month. This rule is applied separately to plans that provide long-term care insurance and plans that do not provide long-term care insurance. However, any medical insurance payments not deductible on line 28 of Form 1040 can be included as part of your medical expenses on Schedule A (Form 1040) if you itemize your deductions.

Effect on self-employment tax. Do not subtract the health insurance deduction when figuring net earnings for your self-employment tax.

Effect on itemized deductions. Subtract the amount of the health insurance deduction from your medical insurance when figuring your medical expenses on Schedule A (Form 1040) if you itemize your deductions.

How to figure the deduction. Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. However, if any of the following apply, you must use the worksheet in this chapter.

• You have more than one source of income subject to self-employment tax.
• You file Form 2555 or Form 2555-EZ (relating to foreign earned income).
• You are using amounts paid for long-term care insurance to figure the deduction.

If you have more than one health plan during the year and each plan is established under a different business, you must use separate worksheets (in this chapter) to figure each plan's net earnings limit. Include your insurance payments under that plan on line 1 of the separate worksheet and your net profit (or wages) from that business on line 4 (or line 11).

Group-Term Life Insurance Coverage

This section provides basic tax information about group-term life insurance coverage.

Group-Term Life Insurance

This is life insurance that meets all the following conditions.

1. It provides a general death benefit that is not included in income.
2. You provide it to a group of employees.
3. It provides an amount of insurance to each employee based on a formula that prevents individual selection. This formula must use factors such as the employee's age, years of service, pay, or position.
4. You provide it under a policy you carry directly or indirectly. Even if you do not pay any of the policy's cost, you are considered to carry it if you arrange for payment of its cost by your employees and charge at least one employee less than, and at least one other employee more than, the cost of his or her insurance. Determine the cost of the insurance, for this purpose.

Employee. For this purpose, an employee is one of the following.

1. A person who works for you whose legal relationship to you is that of an employee.
2. A full-time life insurance agent.
3. A person who was formerly your employee.

Effect of permanent benefits. Permanent benefits are economic values you provide under a life insurance policy that extend beyond one policy year, such as paid-up or cash surrender value.

Life insurance that includes permanent benefits is group-term life insurance only if it meets certain conditions. For more information, see section 1.79-1 of the regulations.

The 10-employee rule. Generally, group-term life insurance is life insurance that you provide to at least 10 full-time employees at some time during the year.

For this rule, count employees who choose not to receive the insurance unless, to receive it, they must contribute to the cost of benefits other than the group-term life insurance. For example, count an employee who could receive insurance by paying part of the cost, even if that employee chooses not to receive it. However, do not count an employee who must pay part or all of the cost of permanent benefits to get insurance, unless that employee chooses to receive it.

Exceptions. Even if you do not meet the 10-employee rule, two exceptions allow you to treat insurance as group-term life insurance.

Under the first exception, you do not have to meet the 10-employee rule if all the following conditions are met.

1. If evidence that the employee is insurable is required, it is limited to a medical questionnaire (completed by the employee) that does not require a physical.
2. You provide the insurance to all your full-time employees or, if the insurer requires the evidence mentioned in (1), to all full-time employees who provide evidence the insurer accepts.
3. You figure the coverage based on either a uniform percentage of pay or the insurer's coverage brackets.

Under the second exception, you do not have to meet the 10-employee rule if all the following conditions are met.

1. You provide the insurance under a common plan covering your employees and the employees of at least one other employer who is not related to you.
2. The insurance is restricted to, but mandatory for, all your employees who belong to or are represented by an organization (such as a union) that carries on substantial activities besides obtaining insurance.
3. Evidence of whether an employee is insurable does not affect an employee's eligibility for insurance or the amount of insurance that employee gets.

To apply either exception, do not consider employees who were denied insurance for any of the following reasons.

1. They were 65 or older.
2. They customarily work 20 hours or less a week or 5 months or less in a calendar year.
3. They have not been employed for the waiting period given in the policy. This waiting period cannot be more than 6 months.

Accidental or other death benefits. A policy that provides accidental death benefits or death benefits other than general death benefits (travel insurance, for example), is not group-term life insurance.

Policy covering employee's spouse or dependent. A policy that provides insurance on the life of your employee's spouse or dependent is not group-term life insurance. However, you may be able to exclude the cost of this insurance from your employee's wages as a de minimis fringe benefit. 

Exclusion From Wages

You can generally exclude group-term life insurance coverage you provide to an employee from the employee's wages as you withhold income tax and pay federal unemployment tax. In addition, you can exclude a limited amount of coverage for other employment tax and reporting purposes.

Exclusion limit. You can generally exclude from an employee's wages the cost of up to $50,000 of group-term life insurance coverage.

Coverage over the limit. If you provide an employee with more than $50,000 of coverage at any time during the year, you must include in the employee's wages the cost of insurance that is more than the cost of $50,000 of coverage, reduced by any amount the employee pays toward the insurance. 

Plans that favor key employees. Generally, if your group-term life insurance plan favors key employees, you must include the entire cost of the insurance in your key employees' income. However, this rule generally does not apply to church plans.

A plan favors key employees if it favors them as to eligibility to participate or as to the type and amount of benefits it provides. Apply the participation and benefits tests (discussed later) separately to your active and former employees.

Key employee. A key employee during 2000 is an employee or former employee who is one of the following.

1. An officer having, for any year listed below, annual pay of more than the listed amount.
   1. 1996 -- $60,000
   2. 1997 -- $62,500
   3. 1998 -- $65,000
   4. 1999 -- $65,000
   5. 2000 -- $67,500
2. A person who, for 2000 or any of the 4 preceding years, was any of the following.
   1. One of the 10 employees having annual pay of more than $30,000 and owning the largest interests in your business.
   2. A 5% owner of your business.
   3. A 1% owner of your business whose annual pay was more than $150,000.

A former employee who was a key employee upon retirement or separation from service is also a key employee.

Participation test. Your plan meets this test if all of the following are true.

1. It benefits at least 70% of your employees.
2. At least 85% of those employees are not key employees.
3. It benefits employees who qualify under a set of rules you set up that do not favor key employees.

Your plan also meets this test if it is part of a cafeteria plan (discussed earlier) and it meets the participation test for those plans.

When applying this test do not consider employees who meet the following requirements.

1. Have not completed 3 years of service.
2. Are part time or seasonal.
3. Are nonresident aliens who receive no U.S. source earned income from you.
4. Are not included in the plan but are in a unit of employees covered by a collective bargaining agreement, if the benefits provided under the plan were the subject of good-faith bargaining between you and employee representatives.

Benefits test. Your plan meets this test if it does not favor key employees as to the type and amount of life insurance it provides. Your plan does not favor key employees just because the amount of insurance you provide to your employees is uniformly related to their pay.

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Why or How it works - Both Sides of the Equation and Examples:

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Alternatives

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Cost v. Benefit Analysis

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Other

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Reserved

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Technical Analysis & Citations What It does, Why it works -

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• Technical Analysis

  • Law

  • Regs

  • Cases

  • Revenue Procedures

  • Revenue Rulings

  • Private Letter Rulings

Commentary

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Law

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Regs

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Cases

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Revenue Procedures

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Revenue Rulings

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Private Letter Rulings

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Tax Killers  

This is about Activity Based Taxplanning - maximizing deductions, minimizing cash outlay and maximizing the amount of cash retained and the net worth.  Activity Based Taxplanning (ABT) is a methodology developed by Bob Parrish CPA, that assists people with the tax issues by focusing on the activity (or actions - events) that are being undertaken or contemplated (or have already taken place).  The,  research is compiled from the myriad of sources to help you complete the activity with the least tax cost, while maintaining compliance the tax laws, other laws and regulations and place yourself in a position to protect your objectives.

Tax is a subject that many view in order to cut costs.  Taxes are a cost just as any other cost.  It happens this cost is somewhat intangible and is defined by legislation without a tangible item to view and control.  The money is spent and the control of the expenditure is more appropriately administered by someone trained in the law.

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Cost Killers   Management Info Sys, Cost Acctg, Activity Based Costing)

 This is about Activity Based Costing  - methods to cut costs, management accounting, management information systems, decision support systems - in general about being a manager.

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Preparing for your CPA, attorney, or preparing to start your own What to gather - 

  

How to Prepare For the CPA or Legal Counsel - Save the Professional Time - Save Your Money

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• What to gather - an Organizer and Prepare for your CPA, Attorney or Financial Adviser

  • Entrance Interview

  • Exit Interview

  • From Banking Records

  • From Customer Records

  • From Signed Documents

  • From Your Other Business, or Financial Records

  • From Corporation or Organization Records (meetings, etc.)

  • What to do

 Entrance Interview

1041 Organizer

Exit Interview

From Banking Records

From Customer Records

From Signed Documents

From Your Other Business, or Financial Records

From Corporation Records or Organization Records (meetings, etc.) 

What to do

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Forms - checklists, time-line to do, etc. Assistance - What To Do - 

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• How to do this - What to Do

  • Action Checklist - What To Do

  • OVERVIEW OF PROCEDURES

  • DETAILED STEPS

    • STARTING

    • PRINT ALL THE REQUIRED DOCUMENTS

    • PRESENTATION STANDARDS

    • OBTAIN THE STANDARD WORKPAPER FORMS NEEDED

    • OBTAIN THE DOCUMENTS FOR THIS JOB

  • FINAL OVERVIEW

  • FINAL STEPS

  • Forms - Checklists - Etc.

  • How to use the forms

Action Checklist - What To Do

OVERVIEW OF PROCEDURES

GENERAL SETUP & STARTUP

PRINT FORMS AND DOCUMENTS NEEDED

PRESENTATION STANDARDS

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DETAILED STEPS

STARTING

FROM CLIENT OR BUSINESS RECORDS

CONTRACTS, BILLS OF SALE, AGREEMENTS, ETC.

LIST OF DOCUMENTS NEEDED

ORGANIZER

ENTRANCE INTERVIEW

EXIT INTERVIEW

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OBTAIN THE ORGANIZER AND BE CERTAIN ALL INFORMATION IS AVAILABLE

GATHER AND SORT THE INFORMATION

OBTAIN THE WORKPAPER TITLE SHEETS

OBTAIN THE PRESENTATION TITLE SHEETS

OPEN ALL STANDARD DOCUMENTS

OVERVIEW THE ENTRANCE INTERVIEW FORM

OVERVIEW THE LIST OF INFORMATION AND CLIENT OR BUSINESS RECORDS NEEDED

START THE REQUIRED COMPUTER PROGRAMS

OBTAIN THE CHECKLISTS IF NEEDED AND WORK ON THE JOB BY EACH TYPE OF ACTIVITY OR EVENT

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PRINT ALL THE REQUIRED DOCUMENTS OR MAKE COPIES AS NEEDED

PRESENTATION STANDARDS

DETERMINE THE CORRECT PRESENTATION STANDARD TO USE

ENGAGEMENT LETTER AND DISCLAIMER

PRESENTATION IN GENERAL

WHAT THE ENGAGEMENT IS LIMITED TO

WHAT SERVICES WERE PERFORMED

HOW THIS HELPS & BENEFITS

4 WAY TEST APPLICATION

Is it the TRUTH

Is it FAIR

Will it build GOODWILL and BETTER FRIENDSHIPS

Will it be BENEFICIAL to all

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BEFORE FINALIZING THE WORK PROCESS CONSIDER THE FOLLOWING

Compliance

Paying Bills or other events

The professional should perform functions the client does not have time for

The  professional should perform necessary functions the client staff does not have training for

Reduce Costs

Reduce Risks

Setting Goals or objectives

Setting methods for monitoring

Setting dates, methods & procedures for follow-up

Setting guidelines for defining when variances from the guideline warrant policy or procedure changes

Identify the policies or procedures that need to be changed to accomplish the goal or objective

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OBTAIN THE STANDARD WORKPAPER FORMS NEEDED

LIST OF THE STANDARD FORMS AND W/P NEEDED

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OBTAIN THE DOCUMENTS FOR THIS JOB

PLACE BLANK FORMS IN THE CORRECT SEQUENCE

GENERAL & FOR ALL JOBS

Instructions for finalizing and completion - for example instructions for the mailing of forms to the IRS

Actions Checklist

Report Cover Letter

Required Documents and attachments

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FINAL OVERVIEW BEFORE THE JOBS IS ENDED & CLOSED

LOOK AT THE ORIGINAL QUESTION - has it been answered, were more questions added?

THE ANSWER - limit the answer to a short paragraph of about 7 sentences.  Did this solve the issue?  The ANSWER is not considered the SOLUTION

THE SOLUTION - understand the objective or goal and restate it.  Were the goals met?  What might prevent obtaining the goals. Do the benefits outweigh the costs?  Reduce Costs?  Reduce Risks?  Setting Goals or objectives:

Setting methods for monitoring

Setting dates, methods & procedures for follow-up

Setting guidelines for defining when variances from the guideline warrant policy or procedure changes

Identify the policies or procedures that need to be changed to accomplish the goal or objective

ACTIONS - checklist, calendar, columnar presentation showing separate columns for Client, CPA, Broker, Bookkeeper, Lawyer, Insurance Agent, etc.

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COST v. BENEFITS ANALYSIS

PROPOSAL

FACTS DISCOVERED & USED

COMPUTATIONS & REPORTS

TECHNICAL ANALYSIS WITH CITATIONS AND AUTHORITY

FORMS - agreements, contracts, trusts, tax forms, financial reports, management information reports, policies or procedures

REQUIRED ATTACHMENTS

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FINAL STEPS

Overview - look at the steps required and the steps performed.  Are there unusual items?  Are there exceptions or adverse results of the procedures performed?  Find resolutions for all unusual or adverse items.

Compliance - has compliance "substantially" been met.  That is no "material" adverse results?

Math Check

Proof and spell check

Theory & overview by someone not performing the procedures

Close the case and archive it.

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Forms and checklists

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How to use the forms

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Financial Accounting: Bookkeeping & Financials 

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• Financial Accounting

  • Financial Statement Presentation

  • Notes to Financial Statements

  • How to Make Entries

  • What Kind of Records to Keep

  • Bookkeeping Methods - Cash, Accrual and Other

  • How the Business Entity Affects the Recording

Financial Statement Presentation

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Notes to Financial Statements

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How to Make Entries

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What Kind of Records to Keep

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Bookkeeping Methods - Cash, Accrual and Other

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How the Business Entity Affects the Recording

Sole Proprietor

Corporation - C & S

Partnerships - General, Limited, Limited Liability Company, Registered Limited Liability Partnership or Company

Trusts

Tax Exempt

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Compliance - what is required for protection, defense, etc.  

Compliance Checklist

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Alerts & Dangers - Risks, Asset Protection, IRS Defense 

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• Alerts - Dangers - Risks - Asset Protection - Defenses (IRS, Etc.)

  • Action Checklist

  • Alerts & Dangers - Risks

  • Asset Protection

  • Your Defense

Action Checklist

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Alerts & Dangers - Risks

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Asset Protection

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Your Defense

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Tools - Spreadsheets - Documents - Reports - Checklists

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• Tools

  • Spreadsheets & Math

  • Contracts, Trusts, etc.

  • Reports Required

  • Checklists - Deployment

  • Checklist - Monitoring

Spreadsheets & Computations 

Spreadsheet #1

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Contracts, Trusts, etc. 

Agreement #1

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Reports Required 

 Report #1

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Checklists for Deployment  

 Checklist #1

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Checklist for Monitoring  

 Checklist #1

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