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Lending Money to Family? Make it a Tax-Smart Loan

One of our tax advisors, Dave Toney of AccountTax, offers these tips when lending money to family.
While lending money to a cash-strapped family member or friend is a noble and generous offer, you need to plan ahead before handing over the cash to avoid tax complications.

Let’s say you decide to loan $5,000 to your daughter who’s been out of work for over a year and is having difficulty keeping up with the mortgage payments. While you may be tempted not to charge an interest rate, you should resist the temptation because:

  1. When you make an interest-free loan to someone, you will be subject to “below market interest rules”.  IRS rules state that you need to calculate imaginary interest payments from the borrower, which are then paid to you.  You will be required to pay taxes on these interest payments when you file a tax return. Further, if the imaginary interest payments exceed $14,000 for the year, there may be adverse gift and estate tax consequences.
  2. The exception is for small loans of $10,000 or less. The IRS lets you ignore the rules for small loans as long as the aggregate loan amounts to a single borrower are less than $10,000 and the borrower doesn’t use the loan proceeds to buy or carry income-producing assets.
  3. In addition, if you don’t charge any interest, or charge interest that is below market rate, then the IRS might consider your loan a gift, especially if there is no formal documentation (i.e. written agreement with payment schedule). It is best to have a written promissory note that includes the interest rate, a repayment schedule showing dates and amounts for all principal and interest, and security or collateral for the loan, such as a residence. Make sure that all parties sign the note so that it’s legally binding.

As long as you charge an interest rate that is at least equal to the applicable federal rate (AFR) approved by the Internal Revenue Service, you can avoid tax complications and unfavorable tax consequences.

If you have questions about the tax implications of loaning a family member money, don’t hesitate to contact us at dat.accountax@fuse.net or view our website here.

Many State Health Insurance Marketplaces will Exceed Requirements

This October brought a monumental start for the country. With its first day, the health care marketplaces opened, and the largest, most complex aspect of the Affordable Care Act began.

While there are problems to fix, the state-run health insurance marketplaces are poised for success, as they are expected to exceed minimum requirements by 2014.

According to a Commonwealth Fund report, the state-run exchanges will surpass federal quality-reporting standards, offer small-business employees a choice of health plan and promote a seamless “one-stop shop” for consumers to begin coverage.

The report found that several states are achieving this by using innovative tactics to improve consumers’ experience beyond the law’s requirements:

  • Reporting quality: Nine states plan to display data on quality in their marketplaces. This is two years before the act requires such data.
  • Increasing options: Small-business employees in state-run marketplaces will have more choices. Nearly all of these marketplaces will provide firms with the more than one plan, starting in 2014
  • Promoting insurer participation: Eight states and the District of Columbia have adopted formal rules to require or incentivize insurers to participate in the marketplaces.
  • Balancing members: Many states have taken steps beyond act requirements to encourage a balance of health and sicker people in the marketplace so that participating plans do not end up insuring mostly unhealthy people.
  • Limiting choice for ease: Insurance carriers may sell at five different tiers of coverage. But many states are limiting the number of plans an insurer can sell at each tier in order to make the choices more manageable.
  • Streamlining eligibility: Fourteen states and the District of Columbia used federal funds to adopt a one-stop shop computer system that will determine coverage potential enrollees are eligible for.
  • Improving assistance: In addition to allowing agents and brokers to sell coverage, the state exchanges are also expected to educate consumers and help them sign up for health coverage.

For more information on the state-run health exchanges, see the press release this information was taken from or the report it concerned. Also please visit the ClaimLinx Exchange as well as the interactive guide to health reform for additional resources and information.

New Flash of Optimism for Small Business Owners

A surge in confidence in July and August reached some of the highest levels since the recession started, according to a handful of recent surveys.

For example, the quarterly small-business optimism index from Wells Fargo and Gallup reached its highest level since the third quarter of 2008. Likewise the National Federation of Independent Business showed its fourth-highest index reading since December 2007.

In addition, the Wall Street Journal/Vistage Small Business CEO Survey said that of the 678 business owners surveyed, 73% expect revenues to increase in the next year and 54% expect profitability to improve.

Jim Houser, owner of Hawthorne Auto Clinic Inc., is already seeing an increase in demand for his business in Portland, Ore. His shop has consistently taken in about 15 cars per day since the recession, but the amount customer spent on repairs in an order had dropped 20% from 2007 to 2010. In recent months, though, he has seen the dollar per repair order climb back to pre-recession levels.

“I think people are no longer afraid of losing their jobs … they’re more willing to take care of their cars and buy things like tires and shock absorbers,” Houser said.

But the shift in small-business confidence may be a bit premature when considering the overall economic outlook. Though it is improving, the current economy is still far from robust, with unemployment just above 7% and gross-domestic-product growth behind the long-run average of 3.5%.

For more information, read the article by Adam Janosky this information was taken from. If you have questions about your small business insurance needs, please contact us today and we would be happy to help you!

What is a Medical Expense Reimbursement Plan (MERP)?

One of the first differences members notice with the ClaimLinx solution is that they now have two cards to show at the doctor instead of one. This is because ClaimLinx uses a medical expense reimbursement plan (MERP).

MERP is the key to the ClaimLinx Solution for providing more cost-effective health insurance.

The medical expense reimbursement plan, a Section 105 plan of the tax code, is any arrangement under which a business reimburses an employee for out-of-pocket medical expenses. And all of these reimbursements are paid to the employee 100% tax free.

ClaimLinx uses the MERP to lower insurance costs but still cover employees’ qualified medical expenses.

Normally if a business reduces medical insurance coverage to lower premiums without adding a MERP, the expense shifts from employer to employee. The MERP allows for employees to receive the same coverage while employers save money.

If you have questions about your plan, email service@claimlinx.com or call 513.677.6262.

Defined Contribution Health Plans

Tom Quigley, National Business Consultant, provides consulting services, and is in charge of recruitment and new business for ClaimLinx.

Today he’s discussing Defined Contribution Health Plans and how they can be utilized to save a company and its employees thousands in tax dollars.

There is no reason to buy a traditional group health insurance plan as of January 1, 2014.  If you would like to attract & retain good employees by offering health benefits without the high cost & requirements of Group Health Plans, then Defined Contribution Health Plans are a good solution. Employees choose their own health plans with the carrier and coverage that work best for them, and pay for it with tax free dollars. Using a private exchange online portal, it’s easy to set up.

You can now add extra revenue to your bottom line by going to our healthcare exchange to learn more; or contact Tom Quigley.

ClaimLinx is proactively ready for the many changes of Health Care Reform.  Our Health Care Exchange has its own call center to enroll individuals in the many policies that are available to them. Please visit the site for more information.

ClaimLinx is positioning its clients to move in the right direction.  We can structure benefits in their favor to ensure they are in full compliance with the law without cutting benefits or employees.  Feel free to contact Tom at tquigley@claimlinx.com or (800)858-1772 X 25 with your questions. Look for our new book, “How to Beat Obamacare” to be released later this year.