Section 105 plans can be used by a variety of unincorporated businesses including sole proprietorships, some partnerships and limited liability companies. They work best for the self-employed or independent contractor. The self-employed have the most trouble finding affordable health insurance.
While corporations can currently deduct from federal income taxes 100% of health insurance premiums as business expense, the self-employed can currently only deduct 60%. The deduction for the self-employed without a Section 105 plan has fluctuated between zero and 60% in recent years. It will gradually rise to 100% in the year 2006 under a federal law recently enacted in 1996.
Here's how a Section 105 plan typically works: A self-employed person hires a spouse, who finds health insurance that the employer pays for, through either reimbursement or direct payment to the insurer. The policy covers the spouse-employee's family; therefore, the self-employed person is covered as a dependent.
The self-employed person can then deduct the full cost of the policy plus any noninsured medical expenses, the latter as a separate category in the plan as a business expense from his or her taxes. The writeoff is taken on Schedule C, the form for self-employment income.
It's going around the back way, but it's legal. Currently, over 50,000 self-employed people in the United States averaged over $2,450 of savings in 1997.
Deductable Under Section 105
- Deductable from Insurance
- Laboratory, X-Ray and Diagnostic Fees
- Physicals Hospital & Physician Fees
- Chiropractic Fees
- Hearing Aids
- Dental Exams
- Artificial Teeth Orthodontics
- Dental Exams
- Artificial Teeth
- Prescription Drugs and Vitamins
- Birth Control Pills
- Insulin and Related Devices
- Wheel Chairs Artificial Limbs
- Eye Glasses Eye Exams Contact Lenses
- Health Insurance Premiums
- Dental Insurance Premiums
- Accident Insurance Premiums
- Cancer Insurance Premiums
- Term Life Insurance to $50,000
Care to learn more? Drop us a note.