Health Care Reform and Your Taxes-Should I Start an LLC?
Everyone knows that the new health care reform law will affect them in one way or another, but as a small business owner, is it something you should worry about? Will it make a difference if I start an LLC or maybe even start a corporation? The answer is a very definite maybe. Although the new law is brimming with new taxes that are set to affect businesses and individuals alike, many of the taxes will not go into effect for several years. Even then, the picture isn’t completely bleak. Tax credits and incentives are also included that can help to ease the burden, so what does it all mean?
First, it’s important to note that if you start an LLC or start a corporation, you will still be able to benefit from tax advantages that owning a business can provide you. Certainly, there could be more value in a formal structure like an LLC or corporation compared to being a sole proprietor. For example, individuals who don’t obtain adequate health coverage by 2014 will be taxed as much as 2.5% of their income. If you make $100,000 a year, that’s $2500 going straight to the government. Also, the floor on itemized deductions for medical expenses goes from 7.5% today to 10% by 2013. If you are over 65, you are exempt from this change, but only through 2016. Want a premium health care plan? Beginning in 2018, a 40% excise tax will be levied on high cost health care plans on the portion that exceeds $10,200 for individuals and $27,500 for families. Additionally, the new law will require that businesses include the value of the health care benefits they provide to employees on W-2’s starting in 2011. These are just a few examples, but it’s starting to sound like being an individual employee might not look so good.
On the other side of the coin, if you start an LLC or start a corporation, the new law will give you tax credits as an incentive to provide coverage, starting this year. If you have 10 or fewer workers, which is most small businesses, and the average annual wage of your employees is less than $25,000, you can receive a credit of up to 35% the health premium costs each year through 2013. Beginning in 2014, small firms will be able to sign up with one of the health exchanges and receive a credit of up to 50% of the costs.
The point here is that while the new laws will be confusing, they could be beneficial is some cases if you decide to start an LLC or start a corporation. If you are a very low earning individual, the laws will benefit you. On the other hand, if you are a high earning individual it looks as if the new taxes could penalize you more seriously. As always, owning a business will continue to provide you with more opportunities to control your taxes and minimize the impact of changes. Whether you already own a business or are thinking of starting an LLC or starting a corporation, consult with a tax professional to determine exactly how the changes will impact you and how you can plan now to minimize that effect through your business structure.
by: Mark Thomas
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