Small Business owners often seek strategies to reduce tax liabilities while managing essential expenses like health insurance. One often-overlooked strategy is hiring your spouse as an employee through your sole proprietorship or single-member LLC. By doing so, you can implement a Health Reimbursement Arrangement (HRA) that offer significant tax advantages.
Key Tax Benefits of an HRA for Your Spouse
Implementing an HRA by hiring your spouse can provide up to for key tax benefits:
Tax-Free Benefit for Your Spouse: Health insurance reimbursements made to your employee-spouse are not considered taxable income for them.
No ACA Penalty Risks: Small businesses with only one employee can legally reimburse individual health insurance premiums without incurring the $100-a-day penalty under the Affordable Care Act.
Business Expense Deduction: Your business can deduct the full amount of reimbursements as a business expense, lowering both your income and self-employment taxes.
Potential Premium Tax Credits: If your household income qualifies, your spouse may still receive government subsidies for health insurance purchased through an exchange.
How to Implement the HRA
To fully benefit from these tax advantages and ensure compliance with IRS regulations, you should:
Document the reimbursement plan in writing under IRS Regulation Section 1.105-11(b).
Establish a family plan that includes you, your spouse, and your dependents.
Require monthly submission of medical expenses from your spouse.
This straightforward plan is ideal for businesses with no additional employees, providing an efficient way to manage family medical costs while optimizing tax savings.
Utilizing an HRA by employing your spouse can be a highly effective tax strategy for small business owners. For personalized advice on setting up an HRA that aligns with your financial goals contact Albrite Financial Group Today.
Disclaimer: This content is for informational purposes only and should not be considered tax or financial advice. Consult a qualified tax professional for personalized guidance.
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