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
• Orthodontics
• 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             

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