The health insurance marketplace is still a fairly new process and regardless of how much has been written about it, argued about it, taught about it, and talked about it, most people who participate in the marketplace have no idea the who, what, when, how, and why of how it actually works.  One of the most confusing aspects of the marketplace is the premium tax credit.

The availability of the premium tax credit is determined based on a taxpayers income as reported on their prior year income tax return.  If you have misrepresented your income or if you experience changes in the current tax season that change your tax situation for the current tax year, you may be required to pay back a portion or all of the premium tax credit you enjoyed.  It is important to represent your income accurately and to report life changes immediately so as not to be in a situation to pay back the credit when you file in April. 

What life changes can impact this credit?

• an increase or decrease in your income
  
• marriage or divorce
• the birth or adoption of a child
  
• starting a job with health insurance
• gaining or losing your eligibility for other health care coverage
• changing your residence
  

 The IRS has developed a Premium Tax Credit Estimator to help you determine how some of the life changes listed above can impact your credit.  The estimator does NOT report anything to the IRS.  It is a taxpayer planning tool only.

This is such a confusing topic and continues to wreak havoc with taxpayers.  If you need help deciphering how the premium tax credit impacts you, call us at 361-578-7333.

It seems that the latest obsession in the business world is the illustrious LLC, also known as a Limited Liability Company.  It has become the latest craze.  The LLC is a good choice for many business owners, however, the decision to form an LLC is only the first of many. 

The Limited Liability Company is organized at the state level.  The Internal Revenue Service does not recognize the LLC as a viable organization.  When we create an LLC, the Service allows us three options for federal filings.

1). Sole Proprietorship:  This option is available if the LLC is a single member LLC.  All income and expenses are reported on the Schedule C of the Form 1040.  The single member is not allowed to take a salary or a wage and all net income is subject to self employment tax.

2). Partnership:  This option is available if the LLC is a multi member LLC.  The income and expenses are reported on a Form 1065.  Net income or losses will flow through to each member's Form 1040.  Members are not allowed to take a wage or salary but can take guaranteed payments.  All net income is subject to self employment tax based on each member's percentage of ownership.

3). S-Corporation:  This option is available for both the single member and multi member LLC.  The income and expenses are reported on Form 1120S.   Net income or losses will flow through to each member's Form 1040.  Each member is required to take a reasonable wage or salary which will be reported on a Form W-2 at the end of the year.  This option is the only option that avoids paying self employment tax on the net income each year. 

Many people visit an attorney or a website like Legalzoom to form Limited Liability Companies.  Many times, this option omits the step regarding income taxes.  This is an extremely simplified summary of the tax consequences for each option.  It is advised to visit with a tax professional to determine which filing situation is best for your individual situation.