Charles Blair, DDS
John McGill, MBA, CPA, JD
Iam an unincorporated dentist in a very small practice with my spouse as the only employee. She is a certified dental assistant and also acts as office manager in a full-time capacity. She draws a salary commensurate with the dental marketplace. Are health-insurance premiums paid by me as her employer a fully deductible business expense?
Yes. Under Internal Revenue Code ("IRC") §162(a) and Treasury Regulation §1.162-10(a), amounts paid by an employer for hospitalization, medical expense, or similar benefit plans are deductible if they are ordinary and necessary expenses of the trade or business. The expense of a typical health-insurance policy for a doctor`s employee(s) generally constitutes an ordinary and necessary business expense.
Furthermore, the premium amounts paid are not included in the employee`s gross income under IRC §106 and Treasury Reg. §1.106-1. Finally, under IRC §105(b), benefits paid under health plans are excluded from the employee`s gross income if paid directly or indirectly to the employee to reimburse for medical-care expenses.
Recently, I attended a seminar featuring a speaker who was touting the huge estate-planning advantages of a Roth IRA. He emphasized that withdrawals aren`t required from Roth IRAs after age 701/2, as is the case with other types of IRAs. Would the beneficiaries named under my Roth IRA also be exempt from these minimum withdrawal rules?
It depends. As a general rule, a surviving spouse is not required to begin taking minimum withdrawals from an inherited Roth IRA after age 701/2. However, any nonspouse inheriting an IRA is subject to the same minimum distribution rules that apply to all other IRAs.
In that case, the beneficiary may stretch out withdrawals over his or her life expectancy, beginning no later than Dec. 31 of the year following your date of death. If the beneficiary does not begin taking distributions by then, the entire IRA account must be distributed no later than Dec. 31 of the fifth year following the date of your death. Fortunately, there`s no income tax on amounts withdrawn from a Roth IRA, regardless of the distribution schedule.
My personal residence recently was appraised at $220,000 and has a $150,000 first mortgage on it. In order to pay off some personal debt, I was able to get an $80,000 second mortgage at a considerably lower interest rate. My CPA now tells me that part of this interest is not deductible. I thought all home-mortgage interest was fully deductible. What gives here?
As a general rule, interest on a home-equity line of credit or second-mortgage loan of $100,000 or less is fully deductible. However, this holds true only to the extent that the total debt on your house does not exceed its fair-market value. Since the total of your two mortgage debts exceeds the appraised value of your home, the interest expense you incurred on the excess $10,000 would be nondeductible personal interest.
While this does not apply in your situation, there is another exception that could provide for full deductibility for some doctors. If these excess funds had been used for home improvements or for investment purposes, the interest may have been fully deductible.
The information provided in this column is based upon the current Internal Revenue Code, regulations, IRS rulings, and court cases as of the date of publication. This column is not to be construed as legal or tax advice. It is recommended that you contact your tax attorney or other adviser before undertaking any tax-related transaction.
Dr. Blair is a nationally known consultant and lecturer. McGill is a tax attorney and MBA. They are the editors of the Blair/McGill Advisory, a monthly newsletter helping dentists to maximize profitability, slash taxes, and protect assets. The newsletter ($149 a year) and consulting information are available from Blair/McGill and Company, 2810 Coliseum Centre Drive, Suite 360, Charlotte, NC 28217 or call (704) 424-9780.