Saving money on administrative costs, like health care for your family, can make a big difference in how much of your earnings you actually keep. Third party administration companies can help you keep more at tax time. With the help of these third party administrators, now is the perfect time to begin saving valuable tax dollars on your health care expenses.
One of the greatest tax advantages for today’s small business owner is IRS Code Section 105. Simply put, this tax ruling allows small business owners to deduct up to 100 percent of their family’s medical expenses as a business expense. With the ever-rising costs of health care, this tax break can mean the difference of thousands of dollars over the course of a year.
IRS Code Section 105 was signed into effect in 1954 to encourage small business owners to provide health coverage for their employees. It has allowed the farming community the same tax advantages as corporations.
The third party administrators created HRA programs based on Code Section 105 to simplify the administration associated with this type of deduction. Third party administrators HRA plans makes working with this complex piece of tax code much easier. Through customer service, record keeping and attention to detail, third party administrators HRA clients are able to save at least $2,000 on their taxes each year.
Compiling all of the necessary documentation to take advantage of an HRA can be confusing and time consuming. Third party administrators work with you on your specific situation to ensure that you have all of the necessary forms in order so you can start reaping the tax benefits of an HRA this tax year.
“It’s a shame, because most family farmers and small business owners don’t even know this opportunity to save on their taxes exists,” said Terry Harrington, owner of BASE, one of the leading third party administrators. “Once you are aware of the potential though, the savings are just a phone call away.”
An HRA will enable you to deduct not only your health insurance expenses, but also up to 100 percent of your medically related expenses such as dental, eye care, deductibles, co-pays and more that you actually incur.
An HRA can actually be better for a family owned business than a Health Savings Account (HSA). With an HSA you are limited to the type of health plan you can choose and you are limited to the maximum allowable contribution amount, usually $6,150 if you have a $5,950 family deductible which is also the maximum amount you can deduct.
If you are a farmer with employees outside your family, you can still utilize an HRA, which would enable you to decide how much of actual medical expenses you wanted to reimburse an employee.
No matter how you operate your farm, you need to ensure you have a properly established plan. Third party administrators handle all of the documentation necessary to properly utilize the tax savings associated with an HRA, whether you have a family farm or you have many employees on your payroll.
Two of the leading Third Party Administrators of HRA plans are BASE and TASC. For information on these TPA’s and other options for IRS Code Section 105, contact your own tax advisor.
Marvin L. Miller is a CPA in Springfield, Mo. He will be taking questions from readers on farm finance and tax concerns. Email your questions to [email protected] or call 1-866-532-1960. Questions will be answered by Mr. Miller in future issues.
