If you’re a small business owner concerned about tax savings, it’s imperative to understand the full scope of the Affordable Care Act and its implications. As we discussed in our previous blog posts, you should understand your ALE qualifying status and proactively identify tax problems.
Then, you should think about several strategies that help you overcome problems before they impact your bottom line. Specifically, make sure you:
When your small business does its tax planning this year, make sure your strategy considers the full scope of Affordable Care Act regulations and mandates. To avoid crippling penalties, partner with an experienced tax consultant who tailors strategies and solutions to your small business.
*This content is for general information purposes and not intended for tax planning. Always consult with an advisor.
- Understand Coverage Limitations
The first step to ensure that you’re realizing optimal tax savings: knowing what coverage the government considers acceptable. The Affordable Care Act spells out, in detail, what types of plans your business must furnish for employees. If the plans you provide don’t meet acceptable criteria, you increase your risk of incurring a penalty.
Plans offered since 2014 must include a set of “essential health benefits” that aren’t always included in existing coverage. These benefits span (but are not limited to) emergency services, hospital stays, mental health and abuse services, prescription drugs, preventative care, and maternity and newborn care.
Furthermore, the law requires you to:
- Provide coverage that offers certain services for every employee, regardless of the employee’s needs
- Provide coverage for employees’ children (but not spouses)
- Provide coverage considered “affordable” (based on a percentage of employee income)
When your small business conducts its annual tax planning, make sure you know coverage limitations down to the letter in order to avoid potentially costly penalties and realize tax savings.
- Structure Your Business
Another key tax savings strategy is structuring your business to reduce the fiscal burden of providing coverage for your employees. If it makes sense financially, you may opt to adjust employee hours in order to reduce your overall number of FTEs so that you don’t meet ALE status. Then, perhaps you won’t need to offer coverage to certain employees. You may also choose to monitor employee billable hours more carefully so that no workers accidentally push you over the qualifying line.
Consider, however, that in order to stay competitive in the marketplace and attract talent, you may need to offer insurance. Carefully weigh the risks and benefits associated with furnishing insurance and arrive at a decision that makes the most sense.
- Plan Your Own Insurance
While a large part of the Affordable Care Act conversation is around employees, you must also think about your own insurance policy to avoid penalties and realize tax savings.
If you choose to provide your employees with health insurance, the types of plans you qualify for as an employer change. The law also affects the way you purchase your own insurance. For example, you may opt to purchase insurance for yourself through your business and not provide employees with insurance – unless you are a corporation with several employees, in which case your possibilities change depending on your business structure.
When it comes to choosing your own plan, there are many complex factors that come into play. Accordingly, you should consider working with an Affordable Care Act tax consultant who is capable of assessing your business’s needs, helping you understand regulations and guiding you towards a sustainable, long-term solution.
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