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Self-Employed?  Learn What the Affordable Care Act Means for You

Article from U.S. Small Business Administration

Many of the provisions of the Affordable Care Act affect small businesses differently depending on their size. For self-employed individuals in particular, there are new options for health coverage and other changes under the health care law that will directly affect you in the coming months.

New Options for Health Coverage through the Affordable Insurance Marketplaces

Under the Affordable Care Act, self-employed business owners now have more options than ever to find affordable health coverage. Beginning in January 2014, self-employed individuals and other consumers will be able to purchase their insurance through new Health Insurance Marketplaces (also referred to as Exchanges).

Health insurance plans offered in these new insurance Marketplaces will offer a core package of benefits, known as “essential health benefits.” The plans may vary according to the percentage of costs the health plan covers, or “metal levels”: 60 percent for a bronze plan, 70 percent for a silver plan, 80 percent for a gold plan, and 90 percent coverage for a platinum plan. Issuers may offer catastrophic-only coverage, which includes free prevention and several primary care visits, to young adults among others.

Self-employed individuals may qualify for premium tax credits and cost-sharing reductions on a sliding scale, based on income, to purchase coverage in the Marketplace. Increased access to quality, affordable health care will make it easier for potential entrepreneurs to go out on their own instead of staying at larger firms simply because of "job lock” or the lack of access to affordable insurance outside of work.

For more information on individual tax credits offered through the Marketplaces and to stay connected with the latest information visit healthcare.gov.

Find Insurance Options Today

To find an insurance plan that meets your needs today, check out the U.S. Department of Health and Human Services (HHS) insurance finder tool. By answering just a few simple questions, you’ll be able to locate health insurance plans in your state and explore whether there are local facilities in your area that provide free or reduced-cost health care.

To learn more about health insurance available to self-employed individuals, visit healthcare.gov.

New Insurance Coverage Requirements: Individual Shared Responsibility

The Individual Shared Responsibility provisions of the Affordable Care Act call for each individual, beginning in 2014, to have:

  • Basic health insurance coverage (known as minimum essential coverage) for each month,
  • Qualify for an exemption, or
  • Make an Individual Shared Responsibility payment when filing a federal income tax return starting in 2015.

Minimum essential coverage includes employer-sponsored coverage, coverage purchased in the individual market, Medicare, Medicaid coverage, Children's Health Insurance Program (CHIP) coverage, veteran’s health coverage, TRICARE, and others as identified by the U.S. Department of Health and Human Services.

Individuals will not have to make a payment under the Individual Shared Responsibility provisions if:

  • Coverage is unaffordable
  • They spend less than three consecutive months without coverage
  • They qualify for an exemption for several other reasons, including hardship and religious beliefs.

To learn what Individual Shared Responsibility requirements and exemptions may apply to you, refer to this Fact Sheet from the U.S. Department of Treasury, as well as these helpful Q&As from the Internal Revenue Service, or consult with your tax professional.

For more information about other provisions affecting self-employed business owners under the Affordable Care Act, go to sba.gov/healthcare.


Buy or Lease Office Space - How to Decide

Article from Microsoft

Sooner or later, every business has to consider whether it is better off owning or leasing office space. From law firms to retailers to yoga studios, the decision varies. But here are some elements that most small businesses take into account.

The cash outlay factor: Generally, you don't need to put out as much money upfront when you lease as you do when you buy. A quick example: A real-estate agent is looking to sell a $500,000 commercial property. Someone leasing the space might pay around $4,000 monthly in rent. Someone looking to buy the building would have to put about $150,000 down, and also would have had to pay for an appraisal, building inspections, loan fees, and other costs.

The fixed/variable cost factor: Buy a building and you have a good idea of what your costs are going to be year after year, especially if you get a fixed-rate loan on the property. Lease and you're subject to the vagaries of the market when your lease term expires. Many leases also have a clause allowing for an annual cost increase tied to changes in the Consumer Price Index or some other measure.

The growth factor: Buying a building that's just the right size for you now can look attractive. But what will you do if your business and your space requirement grow over the next few years?

Outgrowing a space doesn't have to be a financial crisis. One wholesaler I know saw his business increase so much in five years that he needed more than twice the space of the building he'd purchased. He was able to lease out the building at a profit, and moved his own business into a new, larger space.

Still, growing out of a place you own can involve more upheaval than growing out of a leased space. Sometimes a growing business can avoid the cost and hassle of moving by simply leasing more space in the building it occupies. That's not an option when you own a building unless you're only occupying part of it and can terminate the lease of another tenant.

The appreciation factor: Buying a building puts you in a second business: real estate investing. If you're in an area of appreciating land values, eventually you could sell it at a profit. But if you own a building with more space than your business needs, you'll probably end up renting to others, thus becoming a landlord. It can all be profitable (or a financial drain in a down market), but what it is sure to be either way is more work than simply leasing space.

The tax factor: As usual, there are tax issues to consider. Businesses routinely can deduct the full amount they pay in rent. Owners of rental property can write off repairs immediately, but improvements to commercial real estate have to be deducted over 39 years. Depreciation on commercial buildings also is taken over 39 years. That means that if you buy a commercial property for $250,000 and the land is valued at $60,000, you can write off only slightly less than $5,000 of the purchase price annually, regardless of the size of your down payment. You also can deduct interest on the purchase loan, property taxes and other qualifying expenses.

Attorneys may recommend placing commercial property inside an entity such as a limited liability company (LLC), with the LLC then leasing space to other businesses including your own. The reasons for, and logistics of, doing this are too complex to explore fully in this column. The best advice I can give you is to consult with your attorney and tax professional about the legal and financial considerations of owning investment property.

Getting more help

In general, leasing tends to appeal to businesspeople who don't want to make the kind of large upfront investment required with a purchase, who aren't really sure how much space they'll ultimately need and who simply don't want to have to deal with the responsibilities of owning a piece of commercial property. Buying is going to make more sense for businesspeople who are more established, who want to be in one location for several years and who have the financial resources to take on a significant real estate investment.

Some of the basics of comparing leasing to buying (trying to predict future price appreciation, considering cash-flow issues and factoring in the cost of a down payment on something you own versus rental payments that don't build any equity, for example) are similar to issues involved in deciding whether to lease or buy a house.

 

As always, each situation is unique. Contact your legal or accounting professional to see how these issues may affect your specific situation.

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