Learn How Your Business Can Pay for Your Insurance and Medical Expenses

Learn how self-employed individuals can use a Healthinsurance, and other out-of-pocket medical expenses.
Reimbursement Arrangement (HRA) to enable theirIf you are self-employed but do not have an HRA,
business to be reimbursed for health insurance andyou can write off your health insurance premiums on
out-of-pocket medical expenses. An HRA could saveyour 1040, saving you Federal income taxes. But, you
business owners an extra $3,000 each year. If youare still subject to FICA and state income taxes for
are self-employed, your income is subject to a 15.3%these expenses. You are not able to write off any
self-employment FICA tax. Added to a 28% Federalof the other expenses listed above. Using an HRA
income tax and a 5% state income tax, this couldwith a Health Savings Account Some financial
leave you paying nearly 50% of your income to theadvisors do not realize that you can have an HRA
government. Fortunately, most self-employed peoplealong with a Health Savings Account (HSA). You can
qualify to set up an HRA or Health Reimbursementof course. The only caveat is that the HRA cannot
Arrangement. An HRA can enable your business toreimburse for expenses that could apply toward the
reimburse you for health insurance and out-of-pocketdeductible of the HSA, such as doctor visits or
medical expenses, and will save you an extra $3,000prescription drugs. But, it can cover any insurance
each year. Health Reimbursement Arrangements forpremiums and preventive care. The potential savings
the Self-Employed A Health Reimbursementare substantial. Let's assume a business owner is in a
Arrangement is simply an agreement which enables28% tax bracket, has an HSA plan, and is incurring
your business to cover employee's medical expenses,the following expenses. - Health insurance premiums -
including individual health insurance premiums, as a$7,000 - Preventive expenses - $1,000 - Other
tax-free fringe benefit. This tax benefit wasinsurance - $2,000 The self-employed business owner
established in Section 105 of the IRS tax code incan write off the $7,000 premium on Federal income
1955, when General Electric lobbied for a businesstaxes, saving 28% of that or $1,960. If the HSA is
reimbursement rule to give it more flexibility infully funded, an additional $1,582 will be saved off of
creating employee benefits. Anyone set up as anFederal income taxes and $282.50 from state income
S-corp or C-corp qualifies to set up an HRA. If youtaxes. So, in total, the business owner's taxes will go
are a Schedule C or Schedule F sole proprietor, andown by $3,824.50. Once an HRA is set up, the
HRA is allowed if your spouse can work at least partentire $10,000 in expenses listed above can be
time in the business. You will be setting up anreimbursed by the business. So, the business owner
employee benefits package that covers healthwould be saving a total of $2,800 from Federal
insurance premiums, disability insurance premiums,income taxes, $500 from state income taxes, and
long-term care premiums, and even out-of-pocket$1,530 in self-employment taxes. The business owner
medical expenses such as dental coverage. An HRAwill also get to take advantage of the same $1,960 in
makes your taxes go down because when you getHSA tax savings, for a total tax reduction of $6,790.
to write off medical expenses on your Schedule C,Smart business owners take advantage of all the tax
you avoid paying Federal income taxes, state incomedeductions for which they qualify. You can reimburse
taxes, and the 15.3% FICA self-employment tax. Nothealth insurance expenses from the beginning of the
only can the business reimburse you for the cost ofyear, but out-of-pocket expenses only from the
health insurance premiums, but you can also set update your HRA begins.
the HRA to reimburse for dental coverage,More articles from this pro: P.
preventive care, disability insurance, long-term care