Medical expenses can be a major family expense.
There are three ways a family child care provider can deduct such expenses to reduce her personal federal income taxes.
There are two ways you can use medical expenses as a business deduction.
1) You can set up a Health Reimbursement Account (HRA), also known as a medical reimbursement plan or Section 105 Plan that will allow you to deduct medical expenses as a business deduction. These medical expenses can be for you, your spouse, and your children. These expenses must not be already covered by insurance. They can include medical insurance premiums paid by your husband at work, drugs, co-payments, diagnostic fees, examination fees, hospital bills, orthodontia, braces, hearing aids, wheelchairs, eyeglasses, contact lenses, etc.
For every $1,000 of uninsured medical expenses, you can expect to save between $300-$400 in taxes because they will reduce both Social Security and federal and state income taxes.
To take advantage of this medical reimbursement plan, you must set up your husband as your employee. However, you do not have to pay him a salary and worry about paying payroll taxes. I won a US Tax Court case for a family child care provider on this issue. There has also been a recent appeals court case (Shellito v. Commissioner) that says the same thing.
To meet all the requirements of setting up a medical reimbursement plan properly, I strongly recommend that you hire someone to set this up for you. (The cost of setting one up is 100% tax deductible.) The largest national company that sets up such plans is called TASC (Total Administrative Services Corporation). They call their plan BizPlan.
Here’s a helpful brochure that explains how you can save money by using BizPlan.
If you use this application form or mention my name and use code TOMA when you enroll, you will receive a 10% discount on the enrollment fee. Call 888-595-2261 (ext. 17732) for more information.
I will receive some compensation from BizPlan if you take advantage of
this discount. I decided to endorse BizPlan because they are the leader
in providing HRA services to family child care providers and I have been
in contact with them for many years.