Turn the Tide of Taxes with HRAs
December 8, 2017
If someone showed you how to get a 30% discount on all your medical expenses in exchange for a little record keeping, wouldn’t you jump at the chance to find out how? Business consultant Gene Fairbrother offers some advice to small business owners.
There has never been anything easy about health care in the business world. And with health care reform rushing towards us in the form of the Affordable Care Act, things are only getting worse. But, there might be a silver lining in all the health care bureaucracy being thrown at you and it is called a Health Reimbursement Arrangement (HRA).
It’s always been difficult for me to understand why a “C” corporation can deduct the medical expenses it pays for its employees and owners, but if you are a sole proprietor, partnership or own more than 2% of the stock in an “S” corporation the owners have to jump through the IRS hoops to figure out how they can have some equal ground. For many business owners the only way to get any tax relief is to claim medical deductions on schedule A of your personal tax return…and even then you only get to deduct medical expenses that exceed 10% of your adjusted gross income. While my brain is too common sense to be able to understand such bureaucratic issues, there is a way that the majority of small businesses can move those medical expenses from your 1040 to your business tax return.
Moving medical costs from a personal expense to a business expense means that a business owner can realize tax savings on social security taxes, medicare taxes, and in some cases federal and state income taxes. This could mean a tax savings for many business owners in the thousands of dollars.
Health Reimbursement Arrangements (HRAs) have been around since 1954 and allow businesses to reimburse employees for costs like insurance premiums, dental care, eye care, prescription drugs, and other medical expenses. While every business entity (sole proprietorship, partnership, LLC, and corporation) qualifies to set-up an HRA plan, only employees qualify to participate. That means that if you are a sole proprietor or a partner in a partnership you individually can’t participate in an HRA…but tens of thousands of sole proprietors and partners can be covered by having their spouses as employees.
Alliance has been showing members how to save thousands of dollars in taxes by utilizing HRA plans for many years. If you are not already taking advantage of this excellent tax strategy, it might be time for you to get more information. Whether or not you are a member, call Alliance Member Services at 800-733-2242 to arrange for a free consultation with a business consultant to determine how your small business can benefit from tax savings and other advantages of membership.
Using the Alliance Business Consultant Advice Line is a great way to get advice on topics ranging from finance and tax strategies to personnel matters and organizing your business for growth. Discounts on tax savings programs and access to the Business Consultant Advice Line are included in your membership, so see if you qualify here .