Critical Small Business Tax Advice for Accountants to attract clients
Topics: accountants in Canada, tax, partners
The best way to keep a client is to know what is truly best for them. The world’s leading financial professionals have a wide and diverse portfolio of products to offer. Don’t miss out on a tax solution that small businesses should know:
Many small business tax accountants are unaware or want to learn more about a Health Spending Account (HSA) but can’t find the resources. I hope this article helps you to get a better understanding of how a HSA works and who can use it.
Health Spending Accounts are in demand within Canada’s small business community. Viewed as a viable and cost effective alternative to traditional health insurance. An HSA allows a small business owner to reduce their tax burden when paying for their medical costs.
Generally, there are two scenarios when a small business owner wants to get a HSA:
Scenario 1: One Person Small Business Owner / Incorporated Contractor
Your client is a small business owner / incorporated contractor working by themselves or with a spouse. In this scenario, they can use a HSA to pay for their medical expenses with before-tax dollars. Essentially, they can pay for their medical costs through their company account by using a HSA. That can create savings of up to 50% depending on their personal income tax rate. A HSA allows you to eliminate tax on any eligible medical expenses.
Examples of common eligible HSA claims are braces, prescription sunglasses, dental work, prescription drugs, massage therapy, and even private insurance premiums and uncovered insurance claims.
The HSA is a CRA-approved plan that is the ideal tax solution for a small business or family business. Don’t forget, dependants also qualify under this plan.
Scenario 2: Businesses with more than one employee
A HSA can also work for a business with more than one employee, such as an incorporated business with 20 employees. In this scenario, it is best to think of the HSA as an employee benefit. A HSA is a simple way to eliminate taxes on your personal medical expenses as seen above. But what happens when you have employees in your small business helping you? Things can get a little complex because of the tax nature of a HSA.
In this scenario, a HSA allows the business owner to allocate tax free funds to their employees to spend on medical expenses. If a small business owner were to directly pay an employee $1000 to get sunglasses, they would only receive a percentage of that $1000 because of income tax. With a HSA, the employee can receive the full $1000 amount to spend on the sunglasses. The HSA is a tax free benefit for your employees.
Additionally, HSA allocated dollars are a business deduction for your company. Now, you might be wondering why a small business should get a HSA instead of health insurance.
The answer is simple: cost control.
A HSA is not insurance. It is an alternative to insurance. There are no premiums because it is a self-funded plan, meaning the small business owner provides the money in a HSA account, which then reimburses employees with tax free dollars. Employers can designate employees with different spending limits based on their employee classification (ex. VP, associate, manager, part time).
In a traditional insurance plan, the company pays premiums (which cannot be returned if employees do not claim in a given year) and the insurance provider reimburses employees with limited coverage. From what I said, I hope you can see that a HSA equals cost control for employers!
Note: Although it is not usually cost effective, you can have both a traditional health insurance plan and a Health Spending Account.
Is a Health Spending Account a good choice for my client?
In both scenarios, having a HSA is better than not having one. Without it, the business owners and employees are paying for medical expenses with after-tax dollars. After getting a HSA, the business owner and employees are paying for medical expenses with before-tax dollars.
In both scenarios, the HSA is a cost-effective solution. Try our HSA savings calculator for yourself.
Remember: A Health Spending Account works differently based on the small business structure because of its inherent tax plan design. At Olympia, we structure the two scenarios into 3 different products to make it easier for customers to understand.
When does a small business owner qualify for a HSA?
Your small business client qualifies for a HSA if they:
- Pay income tax
- Pay medical bills
- Own an incorporated business
To learn more about selling an HSA to your clients, read our guide for insurance and financial professionals below:
If you are already familiar with the concept of a HSA and would like to sign up as a partner, give us a call at 1 800 668 8384 to learn our on-boarding process.
Related Reading:
What Financial Planners ought to now about Health Spending Accounts
Small Business Tax Credit and Deductions [Tax Planning 101]
What Accountants Need to Know About Health Spending Accounts
7 Critical Ways an Accountant Adds Value to an Incorporated Consultant in Canada
Canadian small business tax savings
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