BY KEVIN M. HEDLEY, MS, CPA, PFS
Business owners are generally more concerned
with day to day business matters and
may not realize some of the opportunities that
may arise from solving problems.
You may be concerned about the loss of key
employees, vendors or major clients, legal expenses,
or a myriad other concerns. All of these
can result in a catastrophic loss if they occur
and are the types of items that can keep you up
at night. When dealing with all of this it isn’t
often that a single solution can be found to solve
multiple problems facing business owners, but
there is such a solution available in the tax law.
One potential solution is known as a Captive
Insurance Company (CIC). The key difference
with the insurance to be discussed here and
insurance you obtain from your local insurance
carrier is you own the insurance company. The
Internal Revenue Code Section 831(b) effectively
allows a business to claim a deduction of up to
$1.2 million in a calendar year and have that premium
go to an insurance company that is owned
by the business owner. The added benefit of the
self owned insurance company is you do not pay
any tax on the receipt of the insurance premium.
Yes, you read that correctly, you deduct the premium
from one company you own and exclude
the income in another company you own.
So how can a CIC help your business?