Small business owners are always looking for ways to save money and cut expenses, and it’s no wonder. Trying to turn a profit is no easy feat, and business owners must be vigilant about every detail of the business.
One detail that needs constant attention is your tax liability. Did you know that as a small business owner, you can legitimately hire your spouse and reimburse him or her for all medical expenses in the household as a business deduction?
Often Overlooked
Section 105 of the IRS code allows small business owners to reduce taxable income by reimbursing certain specified medical and insurance expenses incurred by their employees. For qualifying businesses, this is a great way to lower taxes each year, but many small business owners don’t know about Section 105. This lack of awareness often leads to business owners leaving between $2,000 and $4,000 in tax savings on the table at tax time.
Here’s How Section 105 Works
There are a couple of ways businesses can benefit from Section 105. One is by creating a self-funded insurance plan for employees. The other involves setting up a Health Reimbursement Account (HRA). Your accountant can help you decide which works best for your business.
- Self-funded insurance plan. Under a self-funded insurance plan, an employer sets up and funds an insurance plan for employees rather than paying premiums to an insurance company. Qualified reimbursements under this plan are tax free under Section 105.
- Health Reimbursement Account (HRA). Under Section 105, business owners may create an HRA to go along with conventional health insurance. Employees are reimbursed through the HRA for out-of-pocket deductibles not covered by insurance. There are several types of HRAs available under Section 105, but AgriplanNOW and BizplanNOW are two of the most common. These apply to farmers and small business owners, respectively, and reimburse employees for many types of medical expenses and related items with business tax deductions.
Sign Up to Save
To benefit from Section 105, you have to enroll in the program by December 15, 2019, and commit to participating in the plan for both 2019 and 2020 tax years. The tax professionals at Adams Accounting Solutions can help you determine your eligibility for participation in a Section 105 plan and get you enrolled.
Don’t leave money on the table at tax time. Call Adams Accounting Solutions to set up a Section 105 plan for your business.