In today’s Q&A, we are helping Preston figure out health insurance as an entrepreneur and how it can help him save on taxes.
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Resources Mentioned in this Episode
- Today’s expert is Josh Bauerle from CPA on Fire
- Today’s question is from Preston from Graphic Design Blender
- Last time Josh was on Flipped Lifestyle
Let’s dive into this week’s question!
JOCELYN: Hey y’all! You’re listening to an Expert Q&A with S&J. Today’s expert, Josh Bauerle of cpaonfire.com
Welcome to the Flipped Lifestyle podcast where life always comes before work. We’re your hosts, Shane and Jocelyn Sams. Join us, each week, as we teach you how to flip your lifestyle upside-down, by selling stuff online. Are you ready for something different? All right, let’s get started.
SHANE: What’s going on guys, welcome back to the Flipped Lifestyle Q&A with S&J. We have another Expert Q&A for you guys today; we have an awesome guest on, his name is Josh Bauerle, and he is from cpaonfire.com. Josh, welcome to the program.
JOSH: Thank you, glad to be back.
SHANE: And you may remember Josh, we had him in a long episode talking about running his online business. His wife was on with him, a great episode, we’ll put that on the show notes and today we have him on to answer a tax question because Jocelyn and I are scared to death to answer anything about accounting and taxes.
JOCELYN: And for good reason.
SHANE: For good reason, okay? So Jocelyn, do you have a question for Josh?
JOCELYN: Yes, and it is from Preston, and Preston is from graphicdesignblender.com, and says, “Hey guys, you all are so inspiring. Congratulations on all the success; I have a question for you, one of the biggest fears I have faced from quitting my job is losing our insurance. How did you guys bridge that gap? Also, will buying private health insurance save me anything on taxes? Can I write that off?”
SHANE: And this was a huge question that we had too because we were teachers, the State was basically – our jobs were paying for our insurance and we had no clue how this would impact us or the taxes. So josh, why don’t you tell Preston a little bit about that and how switching to private insurance can impact what he pays on taxes.
JOSH: Absolutely, and you guys have been much better experts at the part about getting private insurance, but I’ll go over the tax benefits here. So, this is actually one area that is actually a huge benefit to be an entrepreneur. So typically, if you are going to get private insurance, the only way there can be a tax deduction is to write them off in what they call ‘itemized deductions’ and medical expenses are super-hard to take as an itemized deduction. Basically in the simplest terms possible, they are going to reduce it by 10% of your income, and then you can only take the amount over that. So, if you made 100,000 dollars, they would immediately take off 10000 dollars of your insurance costs and then you can only take the amount over top of that. So that’s if you are an employee. As an entrepreneur, if you have a business that makes money, you can write off those insurance costs against the revenue in your business, all right? So, let’s say that you made the same 100,000 dollars, as an entrepreneur you paid 20,000 dollars in insurance, and now it’s gonna look like you made 80,000 dollars instead of 100,000.
SHANE: This will save you a fortune really, ain’t it?
JOSH: It is and one key here to remember though is that’s if you made money in your business. So if you are showing a loss in your business, you are not going to be able to write that off.
SHANE: Wow, so you can’t just start a random business and not make a dime, and actually claim anything for your health insurance stuff.
JOSH: Exactly, and I’m sure that is the exact reason they made that rule; they don’t want people just starting a friendship bracelet business and then losing 10,000 dollars a year – [Crosstalk]
JOCELYN: They told me that’s not profitable.
SHANE: I’m sure there is somebody out there that is making money with friendship bracelets, I guarantee it. Let me ask you this, springboard off of that just a little bit, are all medical costs – like if I go buy my Tylenol, my Nyquil, my Benadryl for allergy season, like are all of that tax deductible as medical costs or just your insurance premiums?
JOSH: So we’re talking two different things here, in the entrepreneur’s world; if you are an employee, we are going back to the itemized deductions, and it all goes together, and it still is going to be that super-high limitation of 10% of your income. As an employee, or as an entrepreneur, when we are talking the medical premium deduction, it’s only for the premiums. The actual medical costs will still be itemized.
SHANE: Okay, so you can itemize them, you just have to keep records of all those things you bought, and put it in there basically.
JOSH: Exactly, unfortunately like I said, most of you will not end up getting to take them unless you had something big happen that year and you know, it took tons of – I mean, if you are making any kind of decent money, it’s going to be super hard to take.
SHANE: I got you, so even the premium though, that’s a huge saving because you pay a lot in private insurance. And that was a great fear we had; Jocelyn was scared to death, ‘cause our insurance was like what, 50 bucks a month or something like that?
JOCELYN: Yeah, I mean our employer paid a big part of our insurance when we were still working at school and I think that’s what people don’t realize. They are afraid to lose their insurance because they say, ‘Well, I only pay 100 bucks a month for insurance at work’, but what they don’t see is, the employer is paying about 1000-2000 dollars a month and that is money you could be putting in your pocket and taking advantage of tax deductions, and you know, shopping the market yourself and finding a better rate for insurance. And we actually looked at it and we said, let’s go buy private insurance. The fear went away because when we calculated in the tax savings, when we calculated in the better rate that we felt that we got a better plan that our employee offered, and we looked and said, you know, our employer is keeping 2000 dollars of our money, let’s just get that money back, shop around, and spend 1500, and get the tax break, we actually got a lot more money into our pocket as entrepreneurs through the private market. So I would say, don’t be afraid to go out and look for insurance. It is going to be sticker shock because you are not used to paying, you know, 1000 bucks a month for insurance or 2000 bucks, for your family, but the only reason you are not used to it is ‘cause your employer is paying it and it’s out of sight, out of mind. If you put all that money back in your pocket, shop around and get the tax deduction, you are going to save money.
JOSH: That’s a good point because it’s kind of the same way that taxes work as an entrepreneur; people feel like they are paying more taxes as an entrepreneur because they are getting hit with a big bill all at once instead of as an employee, where they are taking a little bit out each paycheck.
JOSH: So it’s kinda the same sticker shock there and one more quick note is, you do want to look at how your business is structured, what type of entity you are because the deduction works different ways for different entities.
JOCELYN: All right, that is a great answer. I know that that will help so many people out there who had this exact same question because I feel like that it’s really a sticking point for a lot of people when they are thinking about making the jump into online business. So Josh, thanks for that answer and tell people where they can find you online.
JOSH: Yeah, my website cpaonfire.com, or they can only just email me at firstname.lastname@example.org
SHANE: And we want to point out here, Josh is the official CPA of the one and only, John Lee Dumas from Entrepreneur On Fire. So John Lee set CPA on fire, and you are setting the rest of the world on fire; right Josh?
JOSH: That’s right, trying to set the taxes on fire.
SHANE: That’s right, taxes on – I would love to set our taxes on fire.
JOCELYN: I will get onboard on that.
SHANE: All right buddy, thanks again for coming on.
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