LLC Company; two owners. How we can deduct $90,000.00 dental expenses for one of owners.
Optional Information: Newbury Park, California
Hi Customer,The LLC can deduct any premiums paid for dental insurance depending on the plan you set up. The out of pocket expenses paid for dental fees would go on the member's Schedule A, Itemized deductions. The deduction is limited however. You can deduct the are amount beyond 7.5% of your adjusted gross income. $90,000 seems pretty high for dental expenses. If it was for cosmetic surgery, then the deduction is disallowed. you may refer to Publication 502 for further information.
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Thank you for your answer, I do however have a follow up question to your answer. Firstly, I was wondering if you knew if dental implants for the entire mouth were considered cosmetic surgery. Secondly, I wanted to know if setting up a medical expenses account under the company would allow me to receive deductions on the medical/ dental expenses that I will have.
Hi Customer,Certainly, I can answer your follow up questions. 1) Regarding the dental implants and cosmetic surgery, you would need the oral surgeon to sign a report stating they were medically necessary to comply with the IRS code. Usually this is not a problem because of the amount of gum disease that occurs. It isn't always easy to convince the surgeon to do that, however, my father did get the report signed as "medically necessary" for the same procedure. 2) Since the taxes you pay flow through the LLC to your individual returns, you would get the deduction either way. The problem with deducting the actual expenses under the LLC is that one member, let's say the one who will take the medical deduction, influences the botXXXXX XXXXXne of the LLC, thereby treating the other member unfairly. For that reason, the IRS, nor GAAP (Generally Accepted Accounting Principles) allow for deducting actual expenses from the LLC.
I had another concern. In regards XXXXX XXXXX response, what would be considered fairly or unfairly in regards XXXXX XXXXX medical expenses under the LLC, is it a certain percentage or sum? Also, for receiving the deduction either way, is that still the 7.5% after the adjusted gross income?
Hi Customer,My moderators would want me to treat this as a different question and have you repost. I can't do that to such a nice person as you. Plus I do this because I specialize in small business, and love to help in that area (Maybe I'll get a bonus..JUST KIDDING, I'm not supposed to two that either!). I had another concern. In regards XXXXX XXXXX response, what would be considered fairly or unfairly in regards XXXXX XXXXX medical expenses under the LLC, is it a certain percentage or sum? It might be easier to think of your LLC just as partnership, but with more legal protection. If you shared the profits, and deductions 50/50, an inequity would result. Say the LLC grosses $100,000 with no expenses. $50,000 must be reported as income on each members Personal Tax return. Both members will have to pay taxes on that 50,000, but both members received 50,000. Now if one member wants to deduct 90,000 in dental expenses, The LLC's net income falls to a net profit of $10,000. So instead of 50,000 due you, you only get 1/2 of 10,000=> 5,000. That defines an inequity, thus, the reason it is disallowed. I have a suspicion the other member is a spouse, family member, or friend? Also, for receiving the deduction either way, is that still the 7.5% after the adjusted gross income?Since you cannot deduct the medical/dental expenses from the LLC, the expenses must go on Schedule A itemized deductions. If you look at the form, you will see it say "enter your adjusted gross income"--"then multiply that by 7.5%" "If the amount is 0, enter 0" Using my example of 50,000, I would multiply that by 7.5% = 3,750. So the medical deduction would be 90,000 - 3,750 = 86,250. Now that is still awfully high, and may kick in a new tax called alternative minimum tax. Trust me, you do not need to be further confused by that. My advise to you is to setup some sort of health and dental plan, possible a flexible spending account. This becomes a contract essentially, and spells out who is covered under what, and who pays when etc.
Thank you so much
I just wanted to express my gratitude toward you and thank you for being so helpful. You answered my questions completely and I do appreciate it.
It was my pleasure Vitaly, I mean that. Call on me anytime. Mike