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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11361
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I have a client that is a Naturopathic Physician. The business

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I have a client that is a Naturopathic Physician. The business includes the owner and 3 employees. They do not pay medical insurance for anyone at this point in time. However; they do pay for herbs, acuptuntiure, labs, etc. What are the IRS rules for tax deductibility and categorizing these costs? What should the accounting look like?

On another note - Please confirm that the business is exempt from the Affordable Heath Care Act becuase they have less than 50 employees.

As an individual will the owner have to purchase health care come 1/1/14?

Lane :

Hi,

Lane :

These would simply be ordinary and necessary costs of doing business ... VERY simple if these things can be associated with sales/patients, rather than treated as inventory

Lane :

Heng on and let me get you the citation there

Lane :
(a) In general.--There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business


26 U.S.C.A. § 162 (West)

Lane :

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“Ordinary” expense is one that is normally to be expected, in view of circumstances facing business, and a “necessary” expense is one that is appropriate and helpful to the business. Palo Alto Town & Country Village, Inc. v. C. I. R., C.A.9 1977, 565 F.2d 1388. Internal Revenue <table class="JA_img_table">Key Number SymbolFull Size Image​ 3318



In order for payments to qualify as ordinary and necessary business expenses for income tax purposes, they must be appropriate, helpful, and of common or frequent occurrence in type of business carried on by taxpayer. Tulia Feedlot, Inc. v. U. S., C.A.5 (Tex.) 1975, 513 F.2d 800, certiorari denied 96 S.Ct. 362, 423 U.S. 947, 46 L.Ed.2d 281. Internal Revenue
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26 U.S.C.A. § 162 (West)

Customer:

And the value does not have to be included in the employees W2?

Lane :

No, the W-2 (salary or wage expense) would be another of these ordinary and necessary expenses (taking away from profit)

Lane :

It would make sense to attach costs to the patient, for business/management reasons as well

Lane :

allows for some contribution accounting to be done ...will make it easier to see which procedures/items contribute more to profit

Lane :

It is by default a sole propreitorship, so for tax purposes the owner will simply do a schedule C as an attachment to the 1040

Lane :

For tax planning purposes (and to simply make things easier at tax time,you may want to use the schedule C for categorizing costs:


Schedule C (Form 1040), Profit or Loss From Business

Customer:

No, The practice is an LLC

Customer:

Not sure what tax election they made

Lane :

If theres only one owner, an LLC would also be the same (disregarded entity)

Lane :

so schedule C

Customer:

okay. Thanks.

Lane :

Sure ... If you look at line 22 instructions you see :

Lane :


Line 22





In most cases, you can deduct the cost of materials and supplies only to the extent you actually consumed and used them in your business during the tax year (unless you deducted them in a prior tax year). However, if you had incidental materials and supplies on hand for which you kept no inventories or records of use, you can deduct the cost of those you actually purchased during the tax year, provided that method clearly reflects income.

Lane :

You're welcome,


If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.


HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

Lane :

Also, re: Affordable Care Act: • Small businesses with more than 50 full-time equivalent employees with average annual wages above $250,000 must provide health coverage to full time employees come 2015. This is sometimes called "the employer mandate".

Lane :

CAn I help with anything else today?

Customer:

that should do. Have a great day.

Lane :

You too

Lane :

Thanks

Lane and 2 other Tax Specialists are ready to help you

Just doing the final check-in here Stephanie.

Let me know if have further questions

Lane

Thanks so much Stephanie!

If you'd like to work with ME again just say "For Lane only," at the beginning of your next question

OR set me up as your preferred expert on your home page.

Regardless, thanks again.

Lane