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5 Medical Reimbursement Tax Strategies
There are several medical tax planning strategies available for your business. They diverge in their capacity to establish tax savings. Each Medical Plan has specific rules and you MUST adhere to them in order to qualify for the savings:
1. IRC Section 125
2. Health Savings Account (HSA)
If you are a taxpayer with a high deductible, this Medical Savings Account can grow tax deferred, similar to an IRA. Your contributions are tax deductible, and the qualified distributions are tax free. Unlike an FSA (Flexible Spending Account), an HSA does not turn to zero at the end of each year and you can continually roll over unused contributions to help fund retirement.
3. IRC Section 105 Plan (HRA)
Commonly done with a Schedule C or SMLLC. You can also perform it with a Family Management Company (FMC). This deduction is viable if:
- your business employs at least one employee (can be your spouse)
- you are over 25
- you are paying a reasonable compensation (benefits apply to compensation).
The following expenses qualify: Long Term Care Ins, premiums paid from spouse W-2 (from another job), medical expenses on Form 1040, or Special Needs Child Expenses.
4. Qualified Small Employer Health Reimbursement Account (QSEHRA)
This is a company funded account that allows you to reimburse medical expenses if you are not offering health insurance. You can consider this reimbursement as part of the employee’s compensation package. The reimbursements are flexible and there’s a maximum contribution amount. You can find the benefit on Form W-2 in box 12, code FF.
5. IRC Section 401 (h)
The account gets attached to a Cash Balance Plan (defined benefit plan) that you offer to your employee; it’s funded with pre-tax dollars, allows tax free qualified withdrawals, grows tax deferred and also allows for tax bracket shifting opportunities. Basically, a retirement plan with a medical twist.
Your savings for these strategies can range from $2,000 up to $100,000 and more. Implementing the strategy properly will guarantee you the maximum deduction. Not sure how to do it? I’d be happy to help you earn a couple extra thousand of dollars this year:
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