Sole Proprietorship. Sole proprietors generally may not deduct as a business expense the cost of obtaining fringe benefit items for themselves, although items such as day care for the proprietor’s children may be eligible for a tax credit if they otherwise meet IRS requirements. For federal tax purposes sole proprietors may deduct up to 100 percent of the cost of medical insurance premiums paid for themselves, assuming IRS requirements are met. Note that this issue is frequently the subject of legislation in Congress, so anyone affected should monitor developments. Partnership. Partners of a partnership (including members of a Limited Liability Company that is taxed as a partnership) are considered self-employed individuals, and are subject to the same rules on deductibility of fringe benefits as sole proprietors. C Corporation. The C corporation may deduct the cost of providing fringe benefits to employees, including shareholder employees. To be deductible, the fringe benefit plan must meet requirements of the federal and state tax laws, including nondiscrimination in favor of executive or highly compensated employees. Employee health plans also must comply with applicable state statutory requirements to be deductible for Minnesota income tax purposes. S Corporation. An S corporation may deduct the cost of providing fringe benefits that it pays to all employees, including shareholder employees. However, the cost of fringe benefits paid for employee shareholders who own more than two percent of the company’s stock must be included in the income of the shareholder. Typically, this is reported on the shareholder employees’ Form W-2 in addition to their normal salary. Capital Gains and Losses A business that sells or otherwise disposes of capital assets will have a capital gain or capital loss from the transaction. Capital assets are defined by Internal Revenue Service regulations and generally include everything a business owns except property held for sale to customers, most accounts or notes receivable, real and depreciable personal property used in the business, copyrights and similar intellectual property, and certain government publications. Sole Proprietorships, Partnerships, and S Corporations. 2024 Capital Gains Tax Brackets For Unmarried Individuals, For Married Individuals Filing Joint Returns, Taxable Income Over Taxable Income Over 0% $0 $0 15% $47,025 $94,050 20% $518,900 $583,750 C Corporation. A corporation’s capital gains are taxed at the corporation’s regular tax rate. Thus the maximum federal tax rate on a corporation’s capital gain is 21 percent. A corporation may deduct capital losses only up to the amount of its capital gains. If a corporation has a net capital loss, the loss cannot be deducted in the current tax year but instead must be carried to other tax years and deducted from capital gains that occur in those years. This is the case for both federal and Minnesota tax purposes.
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