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A solo 401(k) plan in which the only participants in the plan are the business owners and spouses of course, the spouses are employees of the business...

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HOW TO HIRE YOUR SPOUSE AND DEDUCTION HEALTH INSURANCE PREMIUMS AND MEDICAL EXPENSES AS BUSINESS EXPENSES

If you operate your business as a sole proprietorship and have no employees, you man hire your spouse and adopt a Health Reimbursement Plan and deduct insurance premiums and medical expenses on your business form instead of the itemized deduction schedule.  This strategy will work for sole proprietors and farmers.

The term of art is a Section 105 plan.  The benefits of the plan are best for sole proprietors and farmers that have no eligible employees.

How does a Section 105 Plan work.

     *  Hire your spouse to do work for your business

     * Institute a Section 105 Plan which allows your Schedule C or Schedule F business to reimburse the spouse for insurance premiums and deductibles and Co-payments the spouse pays

     * Do the reimbursement monthly backed up with documentation

     * Have the spouse file with the business weekly signed time sheets

     * The reimbursements may be considered spouse's total compensation

     * If medical reimbursements are the total pay, Form W-2 is not required

     * If a Section 105 Plan is established, it must include all eligible employees, thus, it works best where the spouse is the only eligible employee

    What are the benefits of a Section 105 Plan ?

     * The business may deduct the reimbursement on Schedule C or in the case of a farm Schedule F.

     * The deduction reduces income for both income tax purposes as well as self-employment ( FICA and Medicare) purposes

     * The employee - spouse does not report the reimbursement as income

     * Medicare premiums may also be reimbursed

     * Dental and eye care are medical expenses

     * Mileage reimbursed at the applicable rate per mile is also a medical expense

     * Medical expenses incurred on behalf of the employee spouse, the employee-spouse and dependent qualifies for reimbursement, children up age 27 do not need to be a dependent to qualify for reimbursement

   

 

     

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