3 Myths About AFH Taxes You Need to Stop Believing
- Christina Nguyen
- Jan 8
- 2 min read
Taxes can be a challenging aspect of running an Adult Family Home (AFH). Misinformation or outdated beliefs can lead to missed opportunities, unnecessary stress, and even penalties. Let’s bust three common myths about AFH taxes and set the record straight to help you maximize savings and stay compliant.
Myth 1: Medicaid Waiver Payments Are Always Taxable
❌ The Myth: All Medicaid waiver payments must be reported as taxable income.
✅ The Truth: According to IRS Notice 2014-7, certain Medicaid waiver payments may be excluded from taxable income if they qualify as “difficulty-of-care” payments. This applies if you provide care in your own home. However, the rules can be nuanced, and improper reporting can lead to audits or missed opportunities for savings.
💡 What You Should Do: Work with a tax professional who understands the specifics of IRS Notice 2014-7 to ensure accurate reporting and compliance.
Myth 2: You Can Deduct Everything Without Proof
❌ The Myth: Any expense related to running your AFH can be deducted without documentation.
✅ The Truth: Every deduction you claim—from payroll and utilities to maintenance and caregiving supplies—must be supported by proper documentation like receipts, invoices, or bank statements. The IRS requires this proof to validate deductions during an audit.
💡 What You Should Do: Use accounting software like QuickBooks or Xero to track expenses and attach digital copies of receipts. Regularly review and organize your records to avoid losing critical documentation.
Myth 3: Your Business Structure Doesn’t Affect Your Taxes
❌ The Myth: It doesn’t matter whether your AFH is structured as a sole proprietorship, LLC, or S-Corp.
✅ The Truth: Your business structure significantly impacts your tax liability and deductions. For example, an LLC taxed as an S-Corp may allow you to save on self-employment taxes, but it requires careful management of payroll and distributions.
💡 What You Should Do: Consult a tax professional to evaluate your current structure and ensure it aligns with your financial goals and tax strategy.
The Bottom Line
Believing these myths can cost you money, peace of mind, and even compliance. By understanding the facts and working with a tax expert, you can reduce your tax liability, maximize deductions, and avoid IRS red flags.
📩 Need help navigating AFH taxes? Let’s connect! I specialize in helping AFH owners understand and optimize their tax strategies to grow their businesses confidently.
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