ACA Health Insurance: Understanding Expenses and Deductions for Family Office Managers

Introduction:

Starting a family office is a significant responsibility that involves managing investments, finding dealflow, and reading contracts. Individuals who run their family offices often incur various expenses related to these activities. However, when it comes to taxes, it’s crucial to understand what deductions are available to family office managers under the Affordable Care Act (ACA).

Eligible Expenses and Deductions:

1. Home Office:

If you use a portion of your home exclusively and regularly for your family office work, you may be eligible to deduct a portion of your home-related expenses, such as mortgage interest, property taxes, insurance, utilities, and maintenance costs. The deduction is calculated based on the percentage of your home used for business purposes.

2. Health Insurance:

Health insurance premiums for you and your family members can be deducted as a medical expense. However, to qualify, you must have a net income over a certain threshold and itemize your deductions on your tax return.

3. Margin Loan Interest:

Interest paid on margin loans used to finance your family office’s investments is generally deductible as investment interest. However, the amount of deduction is limited to the net investment income generated during the year.

4. SEP IRA Contributions:

SEP IRAs are retirement savings plans available to self-employed individuals. Contributions to a SEP IRA are deductible as a business expense, subject to specific limits based on your income and contributions made by your employer.

Structuring Your Activity for Tax Efficiency:

While you cannot directly deduct the expenses associated with running a family office as a full-time self-employed investor/money manager, you may consider exploring these options:

1. Establishing an LLC:

Creating an LLC can provide liability protection and some tax advantages. By structuring your family office as an LLC, you may be able to deduct certain business expenses that you would not be able to deduct as an individual.

2. Charging Management Fees:

If you manage investments or provide financial advice to others, you can charge management fees and report them as income on your Schedule C. This allows you to deduct the expenses associated with running your family office from your management fee income.

3. Exploring Personal Service Company Rules:

Personal Service Companies (PSCs) are a type of business structure that may be suitable for family office managers. PSCs allow you to deduct employee-related expenses, such as health insurance and retirement contributions, but you will need to meet specific requirements to qualify.

Seeking Professional Guidance:

It’s essential to seek professional guidance from a licensed agent who specializes in ACA health insurance and self-employment taxation. They can assess your specific situation and recommend tax strategies that can help you maximize your allowable deductions while minimizing your tax liability.