Are you Overlooking This Major Tax Strategy?

If you’re a business owner—especially in real estate—health insurance premiums and medical expenses can feel like a constant drain on your finances. But what if I told you there’s a way to turn those costs into significant tax savings? Enter the Section 105-HRA Plan, a little-known strategy that allows you to transform personal medical expenses into deductible business costs.

This isn’t just another tax loophole; it’s a proven strategy that savvy entrepreneurs like Henry (we’ll meet him soon) are using to save thousands every year. Here’s everything you need to know about this powerful tax-saving tool.

What Is the Section 105-HRA Plan?

The Section 105-HRA combines two powerful tax tools:

1. Section 105 Medical Reimbursement Plan – Allows businesses to reimburse employees for medical expenses.

2. Health Reimbursement Arrangement (HRA) – Provides tax-advantaged funds for health-related costs.

Together, they create a structure where your business can deduct medical expenses that would otherwise be out-of-pocket costs. The best part? This works particularly well for sole proprietors, partnerships, and even single-employee corporations.

Who Can Benefit from the 105-HRA?

This strategy is tailor-made for small business owners who meet specific criteria. Here’s the sweet spot:

• Sole Proprietors & Partnerships: If you’re a sole proprietor or part of a partnership, you can implement this plan by hiring your spouse as your business’s only employee.

• C Corporations: Running a single-owner C corp? The 105-HRA is a seamless way to deduct your family’s medical expenses.

Pro Tip: This strategy works best for businesses with just one eligible employee—like your spouse.

Real-Life Success: Meet Henry

Let’s look at how this works in action. Henry, a sole proprietor, hired his wife as his business’s only employee. Through a Section 105-HRA Plan, he reimbursed $22,000 in medical expenses for her and their family. The result? A jaw-dropping $10,626 saved on taxes in just one year.

What Did Henry Do Right?

• He ensured his spouse was legitimately employed by the business.

• He documented all expenses and reimbursements.

• He used a professional plan setup to ensure compliance with IRS regulations.

Why This Works: The Tax-Saving Magic

Here’s the key: as a business owner, you typically can’t deduct personal medical expenses. But under the 105-HRA, when you hire your spouse as an employee, their medical costs become business expenses—allowing you to claim them as deductions. This applies to:

• Health insurance premiums.

• Out-of-pocket medical costs.

• Dental and vision expenses.

It’s like turning your personal healthcare costs into business investments.

What Are the Big-Picture Benefits?

When set up correctly, the 105-HRA offers powerful advantages:

• Increased Deductions: Medical expenses that were once non-deductible become tax-deductible business costs.

• Tax-Free Reimbursements: Your spouse receives reimbursements tax-free.

• Comprehensive Coverage: Covers everything from insurance premiums to orthodontic treatments.

Even better, this strategy creates peace of mind knowing you’re not overpaying the IRS for healthcare.

How to Set Up a 105-HRA Plan

To reap the benefits of this plan, follow these steps:

1. Hire Your Spouse: Ensure they have a bona fide role in your business, such as handling administrative tasks.

2. Draft a Plan Document: Outline the rules and reimbursement process. This document must comply with IRS guidelines.

3. Record Keeping: Keep meticulous records of all medical expenses and reimbursements.

4. Process Payroll: Your spouse must receive a salary through payroll to qualify as an employee.

Common Questions About the Section 105-HRA Plan

Q: Can I use this if I have employees other than my spouse?
Yes, but the structure and compliance requirements may become more complex. Consult a tax advisor to evaluate your situation.

Q: What types of medical expenses qualify?
Everything from doctor’s visits and prescriptions to long-term care premiums can qualify under a 105-HRA plan.

Q: Do I need to be incorporated?
Not necessarily. This plan works for sole proprietors, partnerships, and corporations.

See It on Your Tax Return

Wondering where this shows up on your tax return? Look for it under “employee benefits” on Schedule C. This deduction directly lowers your taxable income, putting more money back in your pocket.

Your Next Step: Join Our Free Webinar

This is just one of the 150+ strategies we use to help business owners like you save money. In our free webinar, I’ll break down how the Section 105-HRA Plan works in real-time and show you how to apply it to your unique situation.

Don’t leave money on the table—register now and start saving thousands today! Sign up here.