Question

I am the sole owner of an LLC. I have one employee (full-time) who is 22 years old and covered by her parents’ policy. I currently pay $900 per month for a health insurance plan for myself. My spouse pays $250 per month (out-of-pocket) for his insurance under an employer-subsidized plan at his job (this is not a pre-tax plan). My question is, how much of these expenses, if any, can be deducted using a Section 105 medical reimbursement plan?

Answer

One note before we get to your answer: if you don’t do what this article says, your deduction for health insurance is likely zero.

Why? Because your spouse’s employer plan makes you and your spouse claim the insurance cost as itemized deductions where you first face the 10 percent of adjusted gross income floor before you get a penny of tax benefit.

Now, let’s answer your question.

We have some great news for you. With the help of a Section 105 medical plan that covers your soon-to-be employee-spouse, you can write off every single penny you are paying for health insurance and lots of other medical expenses, too!

In your case, your 105 plan write-offs will include your $900 insurance premiums, plus the $250 per month your spouse pays, plus all the other out-of-pocket medical expenses you and your spouse pay. Because you file your taxes as a sole proprietor on Schedule C of your Form 1040, the Section 105 plan coverage of your soon-to-be employee-spouse is pure magic—it turns your medical expenses into tax-favored business deductions that offset both your income taxes and your self-employment taxes.

This article shows you how you can employ your spouse and put the Section 105 medical reimbursement plan, a type of health reimbursement account (HRA), in place so that you can turn your personal medical expenses into tax-favored business expenses. ... Log in to view full article.