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Small Business Owners Should be confused about medical benefits to Employees

By October 21, 2014Business, Tax Strategy, Taxes

Weren’t the pre ObamaCare days wonderful?  No one argues that the insurance system was broken (it still is by the way).  But at least the rules of providing insurance to employees and what was deductible and not deductible were clear.

In the past, as a business owner you could utilize a section 105 medical reimbursement plan to make your medical expenditures a tax write off.  ObamaCare attacks the section 105 plan.  Thus making it more difficult for a business owner to get a tax benefit for medical costs.

We are not Affordable Care Act (Obamacare) experts yet.  But we do hear the question, “What should I do about Obamacare?”  Our focus is always to help our clients keep and grow their wealth.  So we do our best to research what we can and provide a recommendation with our client’s wealth as the focus.

If you ask 10 CPAs any question, you will get 15 responses.  Obamacare is no different.  And because it is so new, no one really knows who is right.  That makes this a gray area. And it will stay a gray area until there is more direction from the all-powerful yet incompetent IRS or court cases.  So for now, you do your best to interpret rules and make a decision based on your interpretation.

I hope this is as frustrating for you as it is for me.  We have spent money for Obamacare trainings where the general message they gave was, “I guess we’ll just have to wait and see.”  That is horrible advice since the IRS can penalize an individual on their personal tax return or businesses based on their interpretation of the law, which they haven’t done a good job sharing with us yet.  I guess we’ll wait and see how much the IRS will screw you based on reasons we don’t even know yet.

Here are two links that I think provide good content that is understandable regarding section 105 plans and the ACA changes.

If you take the time to read their posts, you will notice some similarities in what they are saying but also see that their approaches to writing off medical expenses are different.  The main point seems to be whether or not a reimbursement plan (section 105 plan) is an eligible sponsored plan under IRC 5000A.  Zane Benefits feels that you can design a plan that is NOT an eligible sponsored plan which means you could still write off your medical expenses like we could in the good ole days.

There are others who go a different direction than the Bradford Tax Institute and Zane Benefits.  They feel that the section 105 plans are severely limited now and don’t really provide the same tax benefit.

We know we haven’t really answered any questions here.  Hopefully you might find relief in knowing that the tax professionals and tax law interpreters of the world are just confused as you are.  If I were to make an interpretation and recommendation, I lean towards Zane Benefits way of looking at it.

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