Medical Expences

[SamIam]

I have a client tell me she deducts her medical premium which I know you can do but also all her expenses like copays, labs anything medical. She has a c-corp which its just her and her husband. They don't have an HSA or a Health Reimburcement account. The policy she has is an individual policy through BCBS which I sold her. She only racked up 1100 in bills last year and these people make good money.

Is this possible, I thought you could only write off your premiums or expenses if its 7.5% of your gross. Again she has no HSA or HRA. How is she doing this?

 

[AllenChicago]

Perhaps they set up a Medical Reimbursement Plan (MRP) as described on this tax-tip page: How To Deduct All Your Medical Expenses

Good strategy that I had not heard of until now. Thanks for the info Sam!

-A.C.

 

[SamIam]

I asked that and that was not the case.

 

[arnguy]

The key is that she mentioned a C Corporation. As a C Corporation they are considered employees of the corporate entity. The corporation can deduct their health care expenses as a legitimate business expense.

 

[somarco]

The MERP is easy to set up, just one page declaration. I have used it for years and used to set these up for large companies many years ago before they came under the non-discrimination provisions. They are a great tool for mom & pop businesses.

What is a Medical Expense Reimbursement Plan (MERP)?

FWIW, arnguy is a former IRS agent. I believe he knows a thing or two about what can and cannot be done within the framework of the IRC.

 

[arnguy]

Depending on there income is how it is looked at. .....

What does that sentence mean? Is the income there or is it not there. Then where is it?

 

[SamIam]

The key is that she mentioned a C Corporation. As a C Corporation they are considered employees of the corporate entity. The corporation can deduct their health care expenses as a legitimate business expense.

That's not true after speaking to my accountant today he said only the premiums.

 

[somarco]

Sam, either you or your accountant is misinformed.

 

[arnguy]

That's not true after speaking to my accountant today he said only the premiums.

Bob, it was my error. Sam isand his accountant are correct. I should have clarified that I was referring only to the health premiums paid by the corporation as a legitimate business deduction of the corporation. Now that I look back on your original post, Sam, I see that you were referring to the copays, labs, etc., the miscellaneous personal expenses. My bad, I misread that question (too much Tequila). Those personal medical expenses can be deducted by them as individuals on their Form 1040, Schedule A (itemized Deductions) only to the extent that those expenses exceed 7.5% of their AGI (Adjusted Gross Income). Of course, this applies only to unreimbursed medical expenses. Tell them to refer to IRS Publication 502. Also, Sec. 162, Internal Revenue Code (Title 26 U.S. Code)

The C corporation expenses are ordinary business expenses of that entity. The personal expenses incurred by the owners CANNOT be included as a part of the corporation's expenses and deducted on Form 1120. Those personal expenses, however, can be deducted on their Form 1040 if they meet the criteria for the deduction (the portion that exceeds 7.5% of the AGI). I apologize.

 

[somarco]

They can if they set up a MERP . . .

Which is what I have and have used for years.