One of the biggest problems that small businesses face is the rising costs of Health Care. Do you own a small business and work with your spouse? Do you think you are taking all the legal tax savings possible? Chances are you are not.

Let me tell you about one of the best-kept secrets to lowering your health care costs quickly, the

Health Reimbursement Arrangement!

The Health Reimbursement Arrangement Plan is an overlooked tax advantage available to sole proprietors. They are called HRAs or IRC 105(b) Plans.

A legal loophole allows sole proprietors access to HRA Plans. The provision allows spouses and the spouse’s family members to be covered. The sole proprietor can offer HRA plans to their employees, but cannot be covered under them themselves. However, if your spouse is an employee you are able to be covered under the plan.

Tax Benefits To The Sole Proprietor for offering the plan:

Funds you pay out to employees and any covered family members through an HRA Plan are an allowable business deduction for income tax, and if your spouse and family are covered it also can be deducted for self  employment tax purpose. Virtually any out of pocket expense used for your health care can be deducted as a full business expense so no state, federal or self employment tax. Imagine in addition to your health insurance and dental premiums you could add co-pays, deductibles. over-the-counter medications, vision and eye care, prescription medications, Physicians office visits, Chiropractic Care and much more.

The Two Main Questions The Self Employed Ask:

1. I thought I was already deducting my insurance premiums and

2. I am self-employed and deducting my medical expenses

Here are the facts:

  1. 100% of health insurance premiums became tax deductible for the self employed starting in 2003. The self-employed can take the deduction whether they itemize or not. However. most tax payers are unaware that the 100% health insurance deduction only affects income tax and does not reduce the income tax when calculating Social Security taxes. The 15.3 % Self -employment tax is still paid on insurance premiums. If an employer elects to establish a Section 105 plan for a spouse/employee, the social security taxes are eliminated for the employee as well as the employer!
  2. Medical expenses are deductible if the self-employed itemize deductions, however, they are only able to write off deductions in excess of 7.5% the Adjusted Gross Income. The following are two examples:
  • If Adjusted Gross Income is $60,000 and you have $6,000 in out-of-pocket medical expenses you can only deduct $1500 ( $60,000 x .075=$4500 and $6,000-$4500=$1500
  • If Adjusted Gross Income is $40,000 and you have $3,000 in out-of-pocket medical expenses you can deduct $0.00! ($40,000 x .075=$3,000 and $3,000-$3,000=$0.00)
  • With a Section 105 Plan the employer can deduct the entire $6,000 or $3,000 as a business expense

How Do I Set Up My Own 105 HRA Plan?

Legally, any individual could administer a HRA for their business. However, they would need to be familiar with complicated tax codes and supply all of the legal documentation required by the Internal Revenue Service (IRS), The Department of Labor (DOL) and The Employee Retirement Income Security Act (ERISA). The IRS also requires that reimbursement of all medical expenses deducted through a HRA to be substantiated through a independent third party.

Call me at 404-492-7942 or email me at now to see if you qualify and possibly save over $3800 in taxes this year!

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Quentin Moses is a licensed Life and Health Insurance Agent in Georgia who helps Small Business Entrepreneurs in Atlanta protect their Family & Assets. Quentin has over twenty years experience working with business owners and their investments on Wall Street. He has conducted the workshop “Health Insurance for Small Business” for SCORE Atlanta.

Email if you would like a free consultation

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if you own your own Small Business

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