One-person S-corp Owners Can Save up to $4000 in 2007 Taxes by Establishing a Health Reimbursement Arrangement (HRA)
Self-employed individuals who have their business set up as an S-corp do not qualify for a tax write-off for their health insurance expenses unless they have group coverage, or have a Health Reimbursement Arrangement. Many s-corp owners are rushing to establish an HRA before year's end so they can lock in this tax write-off, according to leading online health insurance broker HSA for America.
Fort Collins, CO (PRWEB) November 27, 2007
The last minute rush to lock in tax deductions has many S-corp owners signing up for a Health Reimbursement Arrangement (HRA) before the end of the year.
According to IRS Headliner 163, the individual owner of an S corporation can only take an above-the-line tax deduction for health insurance if the coverage is purchased in the name of the S corporation. A lack of understanding about this ruling has left many S-corp owners scrambling to set up an HRA before January 1 in order to avoid paying taxes on their health insurance costs.
"We've had a huge surge of HRA applications the past few weeks", reports Wiley Long, president of online health insurance retailer HSA for America. "In fact, we've had more people sign up for HRAs in the past month than had signed up all year."
The ruling, which was issued last year, states in its summary that "a shareholder/employee is not allowed to purchase health insurance in the shareholder's own name and still obtain the above-the-line deduction benefits of IRC §162(l)." Group coverage can be considered a legitimate business expense, but since it is much more expensive than individual health insurance most individual S-corp owners have individual health insurance plans. However, the deduction for such policies must be an itemized deduction, and only premiums in excess of 7.5% of the business's adjusted gross income can be deducted. According to tax experts, the solution is to establish a Health Reimbursement Arrangement.
"If the S corporation establishes a Section 105 Health Reimbursement Arrangement or HRA plan, the business can reimburse the S corporation owner for their individual health insurance premiums as a tax-free fringe benefit. This also satisfies the IRS Headliner 163 requirement for a group plan", said Wiley Long, president of HSA for America. "As an added bonus, the S-corp owner can use the HRA to reimburse out-of-pocket medical expenses tax-free."
The benefits of using a Section 105 HRA for the one-person S corporation include:
the ability to establish $10,000 to $20,000 or more per year in S corporation owner benefits for insurance and medical expense reimbursement 100% above-the-line income tax deduction without the need to itemize 100% deduction of the 15.3% self-employment tax which is not available without a Section 105 HRA plan 100% deduction of FUTA tax which is not available without a Section 105 HRA plan the ability to carryover unused funds in the Section 105 HRA to the next Plan Year
Long added, "It is important to set up your HRA before January 1 in order to lock in this tax deduction for 2007."
HSA for America has complete information on HRAs and how to sign up at: http://www. health--savings--accounts. com/HRA. htm (http://www. health--savings--accounts. com/HRA. htm)
About HSA for America
HSA for America is the nation's leading independent health insurance firm specializing in individual and family coverage that works with a Health Savings Account. Through our comprehensive website we offer complete information on HSAs and qualifying health insurance plans. We offer instant quotes, online health insurance applications, and access to several banks that can act as an HSA administrator for your account. Visit http://www. health--savings--accounts. com (http://www. health--savings--accounts. com) for complete information.
IRS Headliner 163: http://www. irs. gov/businesses/small/article/0 (http://www. irs. gov/businesses/small/article/0),,id=157049,00.html
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