I used to find it annoying when a client would forward me an article about a tax deduction or credit, to make sure I would take it on their tax return. But even though I take approximately 70 credit hours of continuing education each year (almost twice the requirement for Illinois CPAs), every once-in-a-while a new tax law falls between the cracks, or I might not realize a given client is suddenly eligible for an old one. So, while 99% of these shares are “old news”, it’s worth avoiding the eye roll and taking a look just in case. Out with the ego, in with the knowledge.
To that end, when you do share something with your tax preparer, I beg you to phrase it in respectful language that recognizes they are experts in their field. Examples: “I’m sure you already know about this but just wanted to play it safe,” or “I read about this new tax law and am constantly amazed at how much y’all have to keep up with; any chance this applies to my situation?”
There are five tax benefits I’ve noticed — in my interactions with colleagues at conferences, in webinar chat, or in our online communities — that seem to keep flying under the radar. Most likely the tax preparer is expecting the bookkeeper or taxpayer to bring it up if one of these situations exists, but they may not know it’s significant, and may forget to note it in the books or tax organizer. So, to make sure we’re all on the same page, here are a few choice tax benefits that are often overlooked.
- Credit for Small Employer Retirement Plan Startup Costs
- Employer Credit for Paid Family and Medical Leave
- Restaurant Meals Enhanced Deduction (2021 & 2022 only)
- Self-Employed Health Insurance
- Health Insurance Premium Tax Credit
Credit for Small Employer Retirement Plan Startup Costs —
SECURE 2.0 gets most of the airtime these days, but back in late 2019, the original version of this law passed, making it easier for small business owners to set up “safe harbor” retirement plans that are less expensive and easier to administer, and made them accessible to a wider range of employees. Although many of these benefits were modified and expanded upon with SECURE 2.0, the new rules didn’t take effect until 2023. But that shouldn’t stop you (or your preparer) from taking a look at the benefits in place in 2022. For starters, Form 8881, Credit for Small Employer Pension Plan Startup Costs provides for a maximum tax credit of up to $500 per year for startup costs, and another $500 per year to employers who create a 401(k) or SIMPLE IRA plan with automatic enrollment. This benefit is a win-win for employers and employees, especially when the employee additionally qualifies for the retirement savers’ credit.
Employer Credit for Paid Family and Medical Leave —
Effective starting 2018, the Section 45S Employer Credit for Paid Family and Medical Leave is designed to cover up to 25% of the cost to employers of providing paid family and medical leave to their staff. The FMLA credit is claimed on Form 8994, Employer Credit for Paid Family and Medical Leave. To qualify, employers must have a written policy providing all eligible employees access to at least two weeks of paid family and medical leave annually, paid at 50% or more of normal wages (yes, short-term disability policies often count).
Policies must also include leave that covers one or more of the following:
– Birth of a child
– Adoption or fostering of a child
– Care for a spouse or family member with a serious health condition
– Employee’s own serious health condition
– Spouses and family member of certain active military members
Employers can claim the credit for up to 12 weeks of paid leave benefits. It’s available through 2025 and the IRS has an FAQ on it that’s chock-full of details.
Restaurant Meal 100% Deduction —
For 2021 and 2022 only, businesses can deduct the full cost of business-related food and beverages purchased from a restaurant; the limit is usually 50% of the meal, so this can be quite a savings. For our own clients, we’re simply exporting the entire “Meals” category from their financial software and reviewing all payees, sorting out the ones that are not restaurants… yet another benefit for small business owners who heed our cry to “please add payees to all transactions”.
Per the IRS, to qualify for the enhanced deduction:
– The business owner or an employee of the business must be present when food or beverages are provided.
– Meals must be from restaurants, which includes businesses that prepare and sell food or beverages to retail customers for immediate on-premises or off-premises consumption.
– Payment or billing for the food and beverages occurs after December 31, 2020, and before January 1, 2023.
– The expense cannot be lavish or extravagant.
– Grocery stores, convenience stores and other businesses that mostly sell pre-packaged goods not for immediate consumption, do not qualify as restaurants.
Self-Employed Health Insurance Deduction —
Now, this may sound obvious, since almost everyone knows that self-employed people are generally allowed to deduct their health insurance premiums for themselves, their spouses, and their dependents (and in some cases, non-dependent children). Yet we often see this benefit overlooked on tax returns, especially when S-Corp shareholders pay for their insurance through work. There are special and complex rules regarding how this health insurance deduction is claimed, which I suspect is why it is often missed (or sometimes duplicated). It’s important to understand that this is not a business deduction; neither do you have to itemize to take it. The deduction is claimed as a reduction of taxable income, and applies only to income taxes, not to self-employment taxes. It also needs to be subtracted from Section 199A Qualified Business Income before calculating the QBI Deduction, and there are complex issues when it interacts with the Premium Tax Credit (see below), so keep an eye out for these potential issues when claiming this important tax benefit.
Premium Tax Credit —
This one is often overlooked on tax returns in more than one direction… often the client forgets to provide Form 1095-A (Marketplace Health Insurance) to their preparer, which shows the advance premium tax credit, and therefore any increase or decrease in the credit based on the current year’s income is missed. How does this happen? Well, the credit is based on the prior tax year’s income, but “reconciled” on the tax return against the current tax year’s income — therefore, if the taxpayer had a good year, they may lose most or all of their credit. By contrast, in more difficult times, they may find out on the return that they’re entitled to more of a credit than they received. Not everyone enrolled on the Marketplace is eligible for a credit, so it’s easy to miss in the long list of tax organizer questions if the client doesn’t know to ask or to submit the form.
Per the IRS: If you benefit from advance payments of the premium tax credit, it is important to report life changes to the Marketplace as they happen throughout the year. Certain changes to your household, income or family size may affect the amount of your premium tax credit. These changes can alter your tax refund, or cause you to owe tax. Reporting these changes promptly will help you get the proper type and amount of financial assistance. For more information, see Claiming the Credit and Reconciling Advance Credit Payments.
To be fair to tax preparers everywhere, there is far more in the Internal Revenue Code (IRC) than any one person could ever know, which is part of why CPAs are required in most states to obtain more continuing education credits than almost any other professional designation. (Though keep in mind — there is no requirement that a tax preparer be a CPA, or even an EA. See here for my guide to finding a qualified tax preparer in your area.) The past five years have seen unprecedented increases in tax law complexity, and quite frankly — it’s hard to keep it all straight. So if you’re concerned your tax preparer is missing something, please approach the matter with respect and deference, and do not judge too harshly if they happen to have missed something. Just be glad you read this article and caught it in time! (And if you didn’t catch it in time, ask them about filing an amendment.)
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
