Since the Affordable Care Act went into effect, the opportunities to deduct benefits became more limited:
- Flexible Spending Plans (Code Section 125) are available for employees, but participation is limited for shareholders of a corporation, especially S-Corporations , sole proprietors and employees classified as highly compensated.
- Health Savings Accounts (HSA's) provide a federal income tax deduction, but is not deductible in state's that did not conform to the law (such as California)or deductible for self-employment tax calculation, requires a compatible health insurance plan and has contribution limits.
- Itemized Medical deductions have been available, but are extremely difficult to deduct, requiring medical expenses in excess of the Adjusted Gross Income (AGI) floor and requires that the taxpayer be able to itemize. The Tax Cuts and Jobs Act of 2019 made it more difficult to itemize as a result of the standard itemized deduction being increased from $12,000 to $24,000 and limiting tax and mortgage interest deductions.
- Health Reimbursement Account (HRA), likeSOLO105, is ideal for those that qualify. Tax deductible for federal and state income taxes as well as self-employment taxes, this type of arrangement provides the greatest tax benefit. Benefit limits are set by need and reasonable compensation considerations, not statutorily limited, and most medical insurance plans can be used with this arrangement. Ideal candidates for SOLO105 have the following characteristics:
- Sole proprietor or LLC taxed as a Sole Proprietor (or Partnership)
- Married and
- No unrelated employees
or
- C-Corporation owner with no unrelated employees
To see if you qualify, go to www.deductiblemedical.com, our tax qualifier website, to see which plan works for you.