Year End Strategies for Retirement & Medical Deductions

November 9th, 2017 at 7:21 AM

09 Nov Year End Strategies for Retirement & Medical Deductions

Posted at 12:21h Uncategorized by MF

With the clock ticking on 2016 and the ability to lower your tax bill coming to a close, I thought it would be helpful to bring to your attention two retirement and four medical year-end tax-reduction strategies. With the help of one or more of these strategies, you might save several thousand dollars.

The six strategies I will touch upon are as follows:

  1. Establish your 2016 retirement plan before December 31.
  2. Convert to a Roth IRA.
  3. Reimburse your 2016 Section 105 or other health reimbursement account (HRA) medical expenses now.
  4. Make sure your Section 105 medical reimbursement plan complies with 2016 law.
  5. Comply with S corporation rules for health insurance deduction.
  6. Claim the tax credit for the health insurance you give your employees.


  1. Establish Your 2016 Retirement Plan

Stashing away funds for retirement not only provides security for your future, but also decreases your current taxes. Make sure your retirement plan is in place by the end of the year so you can get a tax deduction for 2016.

Several retirement plans comprise contributions from both the employee and the employer. And remember, in most cases you are considered both employee and employer. So check the deadlines for when each contribution must be made for your specific retirement plan. While elections for employee contributions are usually due by year-end, you can take your time with the employer contributions as long as they are in before the tax return is filed.

  1. Convert to a Roth IRA

Consider converting your 401(k) or traditional IRA to a Roth IRA. If you make good money on your IRA investments and you won’t need the retirement funds during the next five years, the Roth is far superior to the traditional retirement plan. Feel free to contact me to discuss all the advantages the Roth has over a traditional IRA.

But before you convert to a Roth, you should know how much your tax bill will be upon conversion, to ensure you have the money on hand. Just make sure not to use your existing 401(k) or traditional IRA for the cash to pay the taxes, because that is likely to trigger both income and penalty taxes.

  1. Reimburse Section 105 Expenses Now

If you previously put your husband-and-wife Section 105 medical reimbursement plan in place, make sure the reimbursements take place before midnight on December 31 to qualify them as business deductions for this year.

The Affordable Care Act has had a big impact on Section 105 medical reimbursement plans. If you have more than one eligible employee on your 105 plan date, you need a group health plan for 2016 to avoid big penalties. Make sure the plan document is signed by you or your corporation and the one eligible employee. If you need a 2016 sample plan document to use for your business, I am happy to provide one.

  1. Comply with S Corporation Rules for Health Insurance Deductions

If you are the owner of an S corporation, make sure you comply with these two requirements before December 31:

  1. The S corporation has either paid for your health insurance or reimbursed you for the cost of the insurance.
  2. The cost of your health insurance is going to be on your W-2.

  5.Claim the Tax Credit

If you provide health insurance as a fringe benefit to your employees, you may be eligible for tax credits. If you are an Affordable Care Act–defined small employer and you cover your employees with group health insurance, you can claim a tax credit of 50 percent in tax years 2016 and 2017 (limited to two consecutive tax years). There are several nuances to this tax credit that I am happy to discuss with you.

Please contact me to discuss in greater depth any of the strategies outlined above.



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