This is a series about the 5 Most Expensive Tax Mistakes That Traders Make. Many people do not think of stock investing and stock trading as a business. But if you make a decent income from stocks, options, futures, forex, bonds, or commodities, consider the extra benefits setting up a small trading business would provide.
Mistake #3. Missing Health Care Strategies
Surveys used to show that taxes used to be a business owner’s biggest concern. Now it’s rising health care costs. If you pay for your own health insurance, you can deduct it as an “adjustment to income” on page 1 of Form 1040. If you itemize deductions, you can also deduct unreimbursed medical and dental expenses on Schedule A, if they total more than 7.5% of your adjusted gross income (10% starting in 2013). But most traders don’t spend that much on healthcare, so they don’t get full deductions for what they spend.
What if there was a way to write off medical bills as a business expense? There is, and it’s called a Section 105 plan, or Medical Expense Reimbursement Plan. If you qualify, you can write off just about any legitimate medical expense. Health insurance premiums, long-term care coverage, Medicare, and “Medigap” insurance. Co-pays, deductibles, and prescriptions. Dental, vision, and chiropractic care. Big ticket expenses like braces for your kid’s teeth, fertility treatments, and LASIK surgery. Even nonprescription medications and medical supplies, like asprin and cold remedies.
The best part is this is money you would have spent anyway, whether you get a deduction or not. You are just moving it from a nondeductible place on your return to a deductible place. You’ll save income tax on whatever you deduct!
There are certain requirements that must be met to take advantage of the Section 105 plan and Trader Tax Coach can help!
If a Section 105 plan won’t work, we can discuss Heath Savings Accounts. These arrangements combine a high deductible heath plan with a tax-free savings account to cover unreimbursed costs. They give you much the same benefit as the 105 plan, without quite the flexibility.
Part 1. The Wrong Business Structure.
Part 2. Why Are You Not Hiring Your Kids?.
Part 4. Wrong Home Office Deduction.
Part 5. Mark to Market Election.