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Tax-Free Medical Expenses for Business Owners

Posted by: Rod Kurtz on September 15, 2008

If you are a regular C corporation, owners can benefit from receiving tax-free medical expenses paid through the company. However, if you’re a sole proprietor, partnership, or an S corporation, these same expenses aren’t normally deductible. Still, there is a way you may be able to get tax-free medical expenses through the business by setting up a medical reimbursement plan. Under this plan, you can deduct 100% of your medical insurance premiums and out-of-pocket costs as a business expense. While not every business qualifies, if you meet the following criteria you might be able to take a bite out of your tax bill.

• You must be married.
• Your spouse must be an employee of the business. Under the plan, the business provides the benefit of reimbursing medical expenses of employees. As your spouse is an employee, he or she is eligible for this benefit.
• If you provide the benefit to your spouse, you must also provide it to other qualified employees. You can specify that only permanent full-time employees who have worked for at least one year qualify. If you have a couple of part-time or seasonal employees and only your spouse is permanent full-time, guess who is the one-and-only employee to qualify for the benefit?
• The plan must be in writing.

If you meet this quick test, talk to your accountant or another professional who can help you determine if a medical reimbursement plan is right for you.

Gene Fairbrother
Business Consultant
National Association for the Self-Employed

Reader Comments

Joelle Niedecken

October 3, 2008 11:22 PM

Thanks Gene! Sounds like great advice and, speaking as someone who works with a discount dental and health plan company, I think this could be invaluable information that we could present to small business owners.

Appreciative of your input,
Joelle Niedecken
Regional Sales Director/Provider Rep.

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