Monday, August 14, 2006

Health Savings Accounts for California Business Owners

Question: I just formed a new corporation. If I elect to have an S corp and hire my spouse to do a legitimate job, can I have an accountable plan to reimburse her for our family's medical expenses (not just insurance premiums) and deduct these as expenses on the corporate return?

Answer: No, but you might consider establishing a Health Savings Account ("HSA") for yourself.

When you file your taxes each year, all of the money you have deposited into your own HSA will be tax-deductible. When you visit a physician, you pay with tax-free money from your savings account at the discounted PPO rate.

When you need to purchase prescriptions, you pay with tax-free money from your savings account at the discounted PPO rate.

Some medical expenses not covered under traditional health plans are covered under the HSA. (dental work, vision care, lasik, braces, maternity, etc.)

By funding the HSA account every year, you will reduce your taxes each year plus, more importantly, it will give you a larger and larger cushion against unexpected "catastrophic" type claims in the future.

Dipping into your HSA savings account is NOT the same as dipping into your pockets - your HSA is the functional equivalent of "insurance coverage for the small bills" - what you don't have to use is yours to keep - which is dramatically different than paying an insurance company a few thousand dollars a year to do virtually the same the "small" bills. Pay yourself not the insurance company.

HSA funds can be used to pay any provider with no network restrictions.

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