Tax Tips

8889 Form
8889 Instructions Form
Sch C EZ Form
HSA Medical Expenses
Sch SE Form
Sch SE Instructions
Publication 560
IRS Virtual Classroom
IRS Small Business And Self-Employed Workshop

NAPA’s Tax Guide for 1099 Independent Agents
Now that you are an independent business professional, or in the eyes of the IRS, a self-employed professional, you can take advantage of the current tax benefits of being your own employer. These tax advantages are typically items that you would not have used when filling your taxes as an employee. These are additional tax incentives. We will evaluate a number of lines from the 1040 Tax form.

1040 Line Items that affect a 1099 Agents / Self-Employed Professionals

Line 12
Business Income or Loss (from Schedule C)
As a self-employed professional, this is where you will record all of your business related income and expenses. You may qualify to use the new Sch C-EZ form.

Line 28
Health Savings account deduction
This new deduction allows individual with a qualified high deductible health insurance plan to make tax deductible contributions to a Health Savings Account.

TIPS for Making Schedule C Easier

  • Keep track of your automobile mileage
    • Keep a daily log
  • Keep track of all Business Expenses:
    • Advertising
    • Office Supplies
    • Postage
    • Business Association Dues
    • Business Insurance including E&O
    • Licensing and CE Fees

GENERAL HSA GUIDLINES

  • Must have a qualified high deductible health insurance plan
  • 2005 HSA Deduction Limits:
    • Single $2600
    • Family $5150
  • Use the HSA to fund qualified out-of-pocket medical expenses
  • Includes medical, dental, prescription, vision
  • Keep a record of all HSA Medical Expenses

Line 30
One-half of self-employment tax (from Schedule SE)
As a self-employed professional you still have to pay taxes. Currently you are taxed at 15% of your Schedule C Business Income. As a tax incentive to self-employed individuals the government allows you to deduct half or 7.5% from your Adjust Gross Income. You will need to use Schedule C to calculate these earnings. This tax information is used to figure your benefits under the social security program.

Line 31
Self-employed health insurance deduction
As a self-employed professional, you can deduct 100% of your health insurance premiums as a business expense. You must have positive business earnings exceeding the premiums in order to claim a 100% deduction. Depending on eligibility you may also be able to claim a deduction for your spouse and childern.

Line 32
Self employed SEP, SIMPLE and qualified plans
As a self-employed professional you can deduct any contributions made to a qualified retirement fund. Plan limits are established by type if fund.  As a independent professional you have of number of retirement options SEP’s, Simple 401(k), IRA’s and 401(k).  The table below will give you some ideas into the tax benefits that each type can offer.

The Following are the 2006 / 2005 limits:
Limit
2006
2005
401(k) Elective Deferral Limit
$15,000
$14,000
Catch-Up Contribution Limit
$5,000
$4,000
Section 415 Limit (DC)
$44,000
$42,000
Section 415 Limit (DB)
$175,000
$170,000
Includible Compensation
$220,000
$210,000
HCE Definition
$100,000
$95,000
Key Employee Definition
$140,000
$135,000
FICA Taxable Wage Base
$94,200
$90,000

The IRS has realized that more and more Americans are moving to independence. The IRS has developed a full library of information and even a virtual class room that is available online 24/7.