Discussion:Sole proprietor health insurance

What do you recommend for your sole proprietor customers (or other self-employed customers) regarding healthcare? As I see it, there are the following options:

1) Individual policy on the open market

2) HRA 105b plan

3) HSA

In all cases above:

a) The policy must be issued in the employer's name

b) Deductions for premiums (and in the case of the 105b, qualified medical expenses) are limited to the earned income of the business less 1/2 of self-employment tax and any IRA contribution.

c) The deduction for the premiums (and 105b expenses) would go on line 29 of the owner's 1040.

I have a client that is estimated to earn $40,000 net income this year ($60K gross income) and is set up a sole proprietorship. They are a member of NASE and are pushing for the 105b plan but I will admit to not knowing every detail of the plan and will have to do a little research.

I am curious to know what you all recommend to your clients....anyone care to share ideas and what you think is best? This transcends taxation considerations and gets into insurance which can be difficult to navigate. This is such a hot topic these days, the answers here will help everyone.

Thanks, Michael

I hope this topic takes off because it is one of those theories where there is probably not a right answer and each person's experience and opinions might ferret out a better idea than another. I am interested to see what everyone favors.

Michael

For my purposes, I would say that I am serving as more of a business coach to my clients (found a way to bill for it so why not?). I am helping them from the ground up to figure out reporting and remittance requirements, train on quickbooks, properly set up their Accounting systems, and also looking for ways to structure their business dealings to minimize their taxes. In some instances, like with the healthcare insurance, I am trying to understand their intentions and see if that is the optimum way. But with the minds on here, I figure that someone will have a good 'other' option.

Michael

I like the 105 if there'll be no other employees, and the spouse DOES work in the business a bit.

HSA's only make sense if the numbers work, and I haven't seen them work yet. (And the tax reporting is a friggin' nightmare!!) When insurance companies and the gov't got into bed together, you could only imagine the child born from that! And indeed, the insurance companies immediately jacked up their premiums on high deductible plans that are HSA's in relation to other high deductible plans, then want to control the money (shocking!) while banks and financial institutions are only now getting on board in realizing that they, too, can have this money....!

In my case, the spouse does work in the business but I am wondering if her salary might be a little low. She is working 7 hours a week to satisfy the NASE requirements and earning $100 per month. I am a little concerned that the IRS may consider a $3.57 per hour salary to be a little low. Of course, with the addition of the healthcare plan, it would up her total compensation. What guidelines do you feel comfortable with regard to the spousal salary? I would think that minimum wage would be the starting point.

Thanks,

Michael

The fringe benefits are permitted to count as the comp package. Biz Plan used to have a good pamphlet on this. But if your hourly cash rate is $2/hr but her benefits add another $6, for example, she's fine.

I do appreciate the help and your advice. Some of these things we encounter are foreign and even with the IRS regs are grey area--evidenced by the court cases filed each year between the IRS and taxpayers. It helps to have a seasoned professional that handled a few to give some guidance.

I really appreciate your thoughts and help.

Michael