2012 Practical Tax Planning: Deducting Medical and Retirement in your Business

November 28, 2012Comments Off on 2012 Practical Tax Planning: Deducting Medical and Retirement in your Business

Strictly speaking, personal retirement and medical expenses are not a business expense. But with a little planning and some specific requirements, your company can be deducting these expenses on your behalf.

Reimburse your section 105 medical expenses. If you previously put a Section 105 medical reimbursement plan in place, make sure that the reimbursement checks are written before midnight on December 31 to qualify the medical reimbursements as business deductions for this year. If you have been thinking about a Section 105 medical reimbursement plan but have not yet done anything, contact us right away.

Record your S-Corporation health insurance deduction. If you are the owner of an S corporation, you need to take steps to ensure your above-the-line personal deduction for self-employed health insurance.

  • The S corporation must have either paid for your health insurance or reimbursed you for the insurance (You need the costs of the health insurance on the corporate books to claim the self-employed health insurance deduction.)
  • Your S corporation treats the cost of the health insurance as compensation to you and includes the cost of the health insurance on your W-2.

Start Your Health Savings Account (HSA). If you don’t fit the mold for a Section 105 medical reimbursement plan and have a high-deductible health insurance plan in place on December 1, 2012, you should consider a HSA. If your plan is in place, you can deduct the cost of your insurance premiums as a cost of self-employed health insurance above the line. Plus you can deduct the amount you contribute to the savings part of the HSA. And here’s the bonus: you may contribute and deduct the maximum for the entire year, even though your plan existed for only a month or two.

Claim the Tax Credit for the Health Insurance You Give Your Employees. Certain employers can claim a credit of:

  • 35 percent in tax years beginning in 2010, 2011, 2012, and 2013
  • 50 percent in tax years beginning after 2013 (limited to two consecutive tax years).

To qualify for the credit you must cover at least 50 percent of the cost of single (not family) health care coverage for each of your employees.

You earn full credit when:

  • you have 10 or fewer full-time-equivalent employees and
  • those employees have average annual full-time-equivalent wages of less than $25,000.

If you have more employees and/or the earnings are higher, then the tax law phases out part or all of the credit.

You may not claim the credit on health coverage you give to yourself, your spouse, and other specified relatives. If you earned the credit but failed to claim it in 2010 and/or 2011, contact us to file an amended return now.

This is only the big picture, of course, so be sure to discuss your particular situation.

About author:

Darrel serves as the Executive Director of Darrel Whitehead CPAs, an accounting practice performing tax, accounting, and administrative services. Beginning his career at Arthur Andersen, Darrel moved on to a regional CPA Firm, Singer Lewak in business management developing expertise in taxation and managing the business affairs of high profile clients in the music and entertainment industries.

All entries by