Kelsey saved $3,538 in one year!

Kelsey has owned and operated a small consulting business in Dallas, Texas since 1994. She is married to Ryan and they have a child, Stephanie. Ryan provides assistance with the business by providing accounting services, filing, billing and whatever else needs to be accomplished that Kelsey doesn’t seem to get to. Prior to last year, Kelsey did not pay Ryan on a formal basis. During 2002, Kelsey and Ryan paid non-reimbursed medical costs totaling $8,500, including health insurance premiums, insurance co-payments, braces for Stephanie, prescription drugs, etc.

On January 1, 2002, Kelsey adopted the Kelsey Renee Consulting Medical Expense Reimbursement Plan (MED 105) to cover all of the employees of the company. She then hired Ryan as her only employee at $15 per hour. The plan allows for the reimbursement of up to $10,000 per year per employee. The plan covers health insurance premiums, insurance co-payments, braces for Stephanie, prescription drugs, etc. The Plan is written, was provided to all employees and was non-discriminatory. Based on these parameters, the benefits paid under the plan to bona-fide employees represent a tax deduction for the business and are not taxable income to the employees.

The bottom line: Kelsey’s tax return, her Schedule C, included $8,500 in deductible employee benefits that she would not have had without the MED 105 Plan. Since the expenses are included on her Schedule C, they are deductible for Self-employment tax as well as federal income taxes.

Kelsey’s total savings due to the MED 105 Plan
$3,538