The Three IRS Approved Methods For Deducting Medical Expenses
Now let ’ s delve a little into the tax laws to see the various ways the IRS allows for the actual write off of medical expenses . The IRS code basically provides three methods for the deducting of these expenses . They are :
1 . The FSA ( Flexible Spending Account )
A business offering group insurance can work with their health insurer to offer what is called a cafeteria plan wherein an employee can have a certain amount of money withheld from his paycheck before taxes and can use the money to cover a host of out-of-pocket medical expenses . There is one major defect with this plan and that is if the employee does not use all of the money he had withheld from his paycheck , he will lose that money at the end of the year .
Potential Tax Savings : Under this plan , the employee can reduce his taxable income resulting in a lower tax liability . The business owner can write off all cost which will reduce the business owner ’ s taxable income as well .
2 . The HRA ( Health Reimbursement Arrangement )
This is a written plan instituted by the business agreeing to reimburse all of its employees for any and all medical or health care related costs they might incur throughout the year . This is a reimbursement plan and not an account that you can lose if you don ’ t spend it during the year . It is self-administered . The business does not have to open an account anywhere and you don ’ t even need to have health insurance . The critical part is that you have to have a small business operation . The HRA can only be used by a C-corporation or surprisingly , by a sole-proprietorship .
Potential Tax Savings : The business can then write off 100 % of the medical and health care costs and the employee does not have to claim the reimbursements as income thus lowering the taxes for everyone .
16 | September 2011 www . DotComSecrets . com Image © Shutterstock . com / Gunnar Pippel