A husband-wife business or a corporation with family employees might want to investigate TASC. TASC is a company that can set up a cafeteria plan for small businesses similar to the kind of plans large companies use. Utilizing their service a small business can write off health insurance expenses, medical expenses, long-term care expenses, etc. pre-tax. The annual cost is very low, but all you have to do is keep records, and at the end of year submit a summary of the records to TASC for review. A typical middle-aged husband/wife-owned business would be able to deduct, pre-tax, a lot of expenses that otherwise would not be allowed as deductions. This service has saved one couple I know more than $5000/year for many years. There are various requirements that have to be met, but for people who meet the requirements, it offers a huge tax savings. For example, imagine that a woman operates a small business. If she hires her husband to help her with the company’s paperwork and pays him a salary based upon that work, they could write off $5000 in long-term care insurance expenses and $15,000 or more in health insurance, drug, and medical expenses. Depending upon their tax bracket the savings could be huge. Without a cafeteria plan, health expenses would have to be 7.5% of their income before any of those expenses could be deducted. There may be other companies that perform the same service, but this is the best one that I know about.
If they have a legit business they can deduct all of that stuff anyway. You definitely don’t need to hire any specific firm in order to take deductions that you are entitled to
You can’t deduct these things unless there is a company plan set up that meets the IRS qualifications.
Any self employed person can deduct health and LTC insurance premiums. It’s line 14 of Schedule C.
With other medical expenses, you would need a medical expense reimbursement plan.
What I’m pointing to is slightly different, and will only apply to certain people. Imagine a woman who owns a small corporation with only one employee, her husband. Other employees could be involved, but I’m keeping the example simple. She pays him a salary for his work large enough to qualify them both for making ROTH contributions and health care reimbursement under a family plan. The corporation has a cafeteria plan that includes reimbursement of all health-related expenses (insurance, drugs, doctor visits, dental, eyecare, etc). The plan is administered and checked for compliance by any one of several companies that specialize in that kind of work (BlueCross/BlueShield, etc). The couple have no debt, so they take the standard deduction on their tax returns and don’t file a Schedule C (because they’re not self employed). Their corporation expenses their health costs as well as many other costs that benefit them indirectly. It’s possible for them to have a high income with many benefits yet pay a much lower effective tax rate than would otherwise be possible. I’m suggesting that this may be worth investigating for certain people. The rules governing cafeteria plans change all the time, and it’s unlikely that an individual who doesn’t work in the health care industry would be able to remain compliant without advice. Most people would probably not even know about some of the options without some research.
It may vary a bit by state, but you would need an incredibly high income/profit to justify the cost of incorporating in the first place, vs. just filing as self employed, when you have no employees other than a spouse. And, at the same time, you would probably need a significant number of medical expenses to benefit from incurring the extra costs of such a plan.
Yes, each situation will be different, and the laws of each state are somewhat different. I had a lawyer in my family, so he told me what kind of paperwork was required and what to do, so it was relatively easy. Incorporation cost about $100. I’ve been told that that kind of information is available online now, as well as all of the necessary forms, but it’s certainly better to know someone who can clearly explain what to do and walk you through the process. Initially, we had a lot of employees, but over the years we gradually shifted to using all subcontractors. As it turned out, having a C corporation was highly beneficial for us. The only thing I’d do differently today is buy real estate and vehicles personally, and lease those properties to the corporation. Because we let the corp buy everything in its name, we pay a small annual tax on assets that we could have totally avoided if things had been structured a bit differently. It costs $400/year to make sure that we’re in compliance with all of the rules governing the cafeteria plan, but we save more than ten times that amount as a result of having it.