Take advantage of medical-related tax deductions
By Betty Thom
Some producers have discovered a little-known tax deduction that is saving them an average of $2,450 a year on federal, state and self-employment taxes.
The savings come from deducting 100% of family health care expenses. That includes insurance premiums as well as non-insured medical, dental and vision care expenses.
"Less than 10% of the farmers are taking full advantage of Internal Revenue Code Section 105," says Bruce Stein, public relations director of Total Administrative Service Corporation (TASC), the
nation's largest administrator of tax savings plans for small businesses.
"Under the current tax law, self-employed individuals can deduct 60% of their health insurance premiums only, with planned increases to 100% by the year 2003," Stein says. "However, by following
guidelines to use Section 105, you can deduct 100% of all medical expenses saving 75% more than if you didn't implement a plan."
To qualify for Section 105, you must be self-employed, have a spouse who assists with the business (even on a part-time basis) and have fewer than three employees.
The farmer constructs a compensation package for the employed spouse that includes both a W-2 wage and fringe benefits. The fringe benefit package reimburses medical costs incurred by the employee and any
family members (including the farmer). Other deductible benefits include "qualified" Long Term Care policies, term life ($50,000 max.) and disability income insurance premiums for the employee (spouse) and other
Technically, the farmer can set up a plan following guidelines spelled out in two IRS coordinated issue papers addressing Section 105. A formal plan and an Adoption Agreement must be completed. Farmers can
find help with this process from firms or third party administrators. In the Northern Plains, some farmers use AgriPlan/BizPlan offered for a small fee from TASC.
AgriPlan includes the documentation and maintenance necessary for utilizing Section 105. It also includes an Audit Guarantee, providing representation in an audit and compensation for any discrepancies
"Farmers who qualify still have time to enroll for a full deduction in 2000," says Stein. Farmers who wish to learn if they qualify and how much they may save in taxes can call 1-800-422-4661 (press 7 when
prompted). Members of the ND Grain Growers are eligible for a $10 first year discount (call 1-877-557-1298 for the coupon).
More information about AgriPlan may be found online: www.tasconline. com/agribiz.htm