Question: Amy is a greater-than-2%-shareholder in an S corporation. Amy paid for her health insurance premiums personally, however, she sought reimbursement from the S corporation, which included those amounts in wages on Form W-2, Wage and Tax Statement, in Box 1. Can Amy deduct the health insurance costs?

Answer: Amy can deduct the premiums she paid personally since they are reimbursed by the S corporation assuming she has enough earned income from the business. For S corporation shareholders, earned income includes the individual’s wages, as defined in §3121 for purposes of Federal Insurance Contributions Act (FICA) taxes (i.e., social security and Medicare payroll taxes), from the S corporation [§162(l)(5)(A)]. Amy deducts these amounts on Form 1040, Schedule 1, Additional Income and Adjustments to Income, Line 17, Self-employed health insurance deduction. The deduction itself is calculated on Form 7206, Self-Employed Health Insurance Deduction.

Question: Edna and Stacy, who own Counting Cowgirls, LLC, purchased a 2025 Subaru Forester and “wrapped” it with a vinyl graphic to promote their accounting business. The question arose as to whether having the advertising on the vehicle makes business use of the vehicle 100%. Is 100% of the mileage for the wrapped vehicle deductible now that it is essentially a mobile billboard?

Answer: No, 100% of the mileage is not deductible just because of the vinyl graphic on the vehicle. Substantiation of business versus personal use must still be tracked even if the vehicle is fully wrapped with advertising. That means Edna and Stacy should track business use with one of several methods, including contemporaneous mileage logs, appointment books or delivery records, or a mileage application on the user’s smartphone. In other words, the advertising function does not convert all use of the vehicle to 100% deductible. However, a benefit still exists to the owners in that they may deduct the wrapping costs as a legitimate advertising expense under §162 in the year such costs were paid or incurred. Deduction costs can include the design, production and installation costs of the wrap as well as any replacement or removal costs due to wear.

If the vehicle is used 100% for business purposes with zero personal use, 100% of the car expenses may be deducted, regardless of the advertising graphic.

Question: Frankie is a U.S. citizen who lives and works in Greece. He meets the bona fide residence test and, under §911(d)(1), he elects to exclude his foreign earned income of $125,000 from U.S. taxation on Form 2555, Foreign Earned Income. Can he also claim the foreign tax credit on Form 1116, Foreign Tax Credit, for income taxes he paid to Greece?

Answer: No, he cannot double-dip on the same income. Because Frankie is using Form 2555 to exclude his foreign-earned income, he cannot use Form 1116 to claim the credit on the same income. Once Frankie elects to exclude his foreign-earned income, he cannot take a foreign tax credit for taxes on income he excluded or could have excluded. If he does, one or both choices may be considered revoked §911(a), Reg. § 1.911-7(b) (2).

Question: In 2024, Sunhi made all of her daughter Angelica’s student loan payments, including $3,500 in interest, through a check sent directly to the loan service provider. The loan is solely in Angelica’s name, and she is responsible for repaying it. Sunhi has no legal obligation to make the payments. Angelica’s modified adjusted gross income (MAGI) exceeds the threshold for claiming the student loan interest deduction. Sunhi wants to know if she could report the student loan interest deduction on her own 2024 tax return since her MAGI is below the threshold amounts.

Answer: No. Sunhi is not eligible to deduct the student loan interest on her return. Under §221, taxpayers may deduct up to $2,500 of qualified student loan interest paid during the year. However, one key requirement for taking the deduction is that the taxpayer must be legally obligated to pay the loan. In this case, the loan is in Angelica’s name, and Sunhi is not legally responsible for the debt, rendering her ineligible for the student loan interest deduction. In this scenario, Angelica is treated as receiving the payment from Sunhi and, in turn, paying the interest [Reg. §1.221-1(b)(4)].

Question: On Jan. 1, Edna and Stacy each contributed $100 in cash to a new limited liability company (LLC) taxed as a partnership, Counting Cowgirls. Each partner has a 50% interest in the LLC. The LLC immediately obtained an $800 loan to purchase a laser printer, qualifying for $320 of bonus depreciation (40% of $800). This creates a business loss of $320 for the year. Can Edna and Stacy deduct this loss against their outside basis, or is the loss suspended?

Answer: Yes, Edna and Stacy can each deduct their share of the $320 loss. Deductibility hinges on outside basis, which is sufficient due to the liability allocation.

Each partner contributed $100. The $800 partnership loan increased each partner’s outside basis by their $400 share of liabilities, bringing their outside basis to $500 each ($100 + $400). Outside basis includes a partner’s share of liabilities and cannot go negative. Losses are only deductible to the extent of a partner’s outside basis.

The $320 bonus depreciation is allocated equally, resulting in a $160 loss per partner. Outside basis, remains positive at $340 ($500 - $160), so the entire loss is currently deductible.