Save: Let Your Business Fund Your Long-Term Care Insurance

Property insurance. Liability insurance. Health insurance. Small business owners face myriad insurance decisions. And the healthcare reform measures currently being debated in Congress may be casting even more confusion on the subject.

However, there could be some happy surprises in store when you look into the details of long-term care insurance.

As a small business owner, you may receive tax benefits when you purchase such insurance. It’s an advantage that many are missing, even though the benefits apply, with some variations, to sole proprietorships and several other types of small business.

In most cases – there are some exceptions – most small business owners can:

• Save money by buying long-term care insurance through their businesses for themselves and, in some cases, for their dependents and employees.
• Claim long-term care benefits as tax-exempt.

How does it work? It goes back to 1996, when the Health Insurance Portability and Accountability Act (HIPPA) was enacted. That legislation included tax incentives for small businesses and favorable provisions regarding long-term health insurance. Here are some specifics.

1. Self-employed business owners who buy their long-term care insurance through their companies can deduct 100% of their out-of-pocket expenses for long-term care premiums up to an age-related limit set by the Internal Revenue Code (visit irs.gov/businesses/small). Spouses and dependents are included and business owners are not limited by the 7.5% AGI threshold.

2. Business owners who are part of a partnership or limited liability company, or who own at least 2% of an “S” corporation, are taxed as self-employed individuals. Because of that, they may deduct 100% of their long-term care premiums according to age-based eligibility. If their spouses are true employees, the regulations also apply to them.

3. Long-term care insurance is a supplemental policy. It can cover expenses not covered by Medicare. This can be appealing to business owners approaching retirement or planning for their Medicare years.

4. Employers who buy long-term care insurance through their businesses on behalf of themselves, their spouses and dependents, and their employees can deduct the full cost of the premiums as a business expense.

5. Qualified businesses may receive a 5% to 15% discount on premiums – depending on the individual insurance company.

6. Many states also offer tax benefits to employers and employees for long-term care insurance bought through their businesses.

7. Employees generally like this perk because it can be made through a payroll deduction, benefits generally are tax-free and they pay no income taxes on employer contributions.

Study the Details

Before you make a decision to buy a plan, however, consider that the long-term care insurance plan must be bought through the business – not just in the name of the business owner. You should buy insurance from a reputable and stable insurance company.

Before you act, clarify costs and tax benefits with financial professionals, and ensure that when you look at policies, you look for those that cover nursing homes, assisted living facilities and at-home care, as well as adult day care and hospice care.

There are other considerations, too. Some small business owners can’t afford long-lasting long-term care insurance for themselves and their employees. Many pay for a specific period of time beginning at age 65 and hope they don’t need more.

There are a number of options and variables to decisions of this kind, although there are distinct advantages to using your business to fund long-term care insurance.

Feel free to give me a call if you would like my assistance as you consider all the facets of your long-term healthcare options.

Rain, Wind, Fire... Is Your Business Ready To Cope with a Disaster?

Wildfires in California, mudslides in Maine, tornadoes in Tennessee, flooding in North Dakota – it doesn’t matter where you live or have your business, natural disasters can occur anywhere. It doesn’t have to be a major earthquake or hurricane to spoil your business.

As of mid-August, the Federal Emergency Management Agency (FEMA) had declared 45 major disasters in the United States. There were 75 in 2008. Are you prepared to cope if a calamity affects your business?

The American Red Cross estimates only 4% of Americans have taken all recommended disaster-preparedness steps, and 23% have done nothing at all. Small business owners may have taken some steps to prepare, but if you haven’t yet developed a complete plan, doing so could mean the difference between being shut down for just a few days or losing your livelihood.

Basic Steps

Having a workable disaster preparedness plan can be as important as your business plan. You can begin by gathering some basic information.

• List essential production machinery, computers and other vital equipment you must have in order to keep your doors open.
• Store some supplies offsite.
• Keep back-up copies of tax, accounting, payroll, production and customer data stored on hard drives located far away. Consider using an online computer backup service that stores your data on servers located hundreds or thousands of miles away. Essential paper records should be kept in a fireproof safe.
• Scout out a temporary location from which you could operate if your building suffers major damage.
• Buy a portable generator, in case power is disrupted.
• Review insurance policies. They should cover everything vital to your business.
• Consider business interruption insurance that will cover operating expenses and compensate you for lost income if you are forced to close temporarily.
• Flood insurance is almost certainly not covered by your other policies. It doesn’t take much standing water to do a lot of damage – check out coverage available through the National Flood Insurance Program at floodsmart.gov.
• If you don’t own the building in which your business is located, consider working with the owner to evaluate the strength of the roof, windows and doors. You may want impact-resistant windows and doors to stand up to high winds.

Human Factors

While thorough attention must be paid to all structural, equipment and business records, the human element may be equally important, depending on the nature of your business. Being able to communicate effectively with key employees can be vital to the continuation of your business.

• Communicate your disaster plans to all employees and anyone else who should be aware of them. Within the business itself, make sure everyone knows the escape routes and that they are clearly marked.
• Devise a post-disaster communication strategy for employees. They’ll want to know if their jobs are intact; you will want to know that they are not only safe, but also ready to work. You may need to call on key employees first, to help you re-establish yourself in temporary quarters.
• Keep safe a list of employee phone numbers – both mobile and landline – and e-mail addresses right along with your emergency list of numbers for customers, utilities and emergency agencies. Keep numbers for the local media, too. Depending on the nature of your business, it could be important to let the public know you’re still operating.

To be sure, disaster planning is time spent making arrangements for something that may never occur. But experts point out that we plan and insure for many things we hope will never happen. Your workable plan could be your best chance to save not just your business, but the financial integrity of your family, of your legacy – and of your employees and their families.

Post-Recession Business Financing May Be No More Difficult than in the Past

The recession notwithstanding, financing your small business is likely no more difficult today than it was in the past, at least according to the National Federation of Independent Business (NFIB). Five years ago, 5% of small business owners viewed financing as their toughest challenge. In August 2009, half a decade and a recession later, the NFIB concluded that only 4% of its constituents viewed financing as their top concern.

But that doesn’t mean it’s easy. Although banks may be willing to lend – with or without the help of the Small Business Administration (SBA) –many have tightened loan standards. On the brighter side, as part of the bid to stimulate the economy, the SBA has reduced bank fees and increased the government-guaranteed portion of each loan.

Alternative Sources

If you run into problems with banks, a home equity loan can be a cost-effective alternative – assuming you have sufficient equity and are willing to put it at risk. Similarly, borrowing from your 401(k) or other retirement plan is an option, although probably only as a last resort. While your plan may allow borrowing up to a designated limit, you usually have a maximum of five years to repay the loan, and such borrowing could have negative consequences for your retirement plan and potentially trigger some serious tax consequences.

If your need for cash is short-term, consider a credit card advance, although this strategy can be expensive. Equity financing, whether furnished by outside investors, family members or through an employee stock option plan (ESOP), may also be worth a look.

Finding an “Angel”

Individual “angel investors” may be an option for a small business that the banks deem overly risky, just as venture capitalists (VCs) may be a source of financing for somewhat larger concerns.

VCs typically have stringent investment criteria, specialize in specific high-growth industries, are looking to cash out within five years and frequently have specific criteria with regard to firm size and track record. In addition, this route may cost you some of your independence, since VCs often take an active role on the company’s board and in formulating policy.

However you choose to finance your business, it’s vital that you carefully weigh the pros and cons of the strategies you are considering. I’ll be happy to help you find the best solution for your unique situation.

Don’t Neglect Stimulus Package Small Business Tax Breaks

Several tax breaks for small businesses and small business owners were included in February's federal government stimulus package. If you haven't already assessed whether they could help you or your business, remember to check them out before the end of the year. Some may apply for only a limited time.

A Section 179 provision allows you to deduct as expenses up to $250,000 of the cost of machinery, equipment, vehicles, furniture and other qualifying property put into service this year. Any excess must be depreciated over the life of the property.

In 2010, the expense cap will drop to $133,000, and after that, it returns to $25,000. The Internal Revenue Service makes it clear that the existing $25,000 limit still applies to sport utility vehicles. And, of course, Section 179 deductions cannot exceed taxable income.

Another break for small business owners is a provision that an individual may exclude 75% of the gain from small-business shares acquired after February 17, 2009, but before January 1, 2011. To qualify for this break, the stockholder must own the shares for more than five years. There are limits to this exclusion (which is normally 50%). For a list of special small-business tax breaks, visit irs.gov.