How to keep family healthy without breaking the bank

As a farmer, you manage the finances of your business and know how hard it is to earn and keep a dollar these days.

Even tougher is spending that hard earned money on paying dental bills and medical expenses for you and your family. The key is to get the most out of your money, just as with any spending decision.

With effective planning, these expenses can turn into a tax savings opportunity for you and your business.

Many of us pay for medical expenses right out of our pockets. This money is after-tax and as such, $100 in medical expenses could cost you $150 pre-tax.

This cost creates a medical expense tax credit, but limitations apply.

An alternative option is to obtain traditional health insurance. Under most plans, you pay periodic premiums to the insurance provider. In exchange, the provider reimburses qualifying medical expenses.

This option is an effective alternative to paying for the costs yourself, but the premiums can often be higher than the medical costs. This leaves you with less money than if you paid for the medical service directly.

Health insurance premiums can also be used as a tax credit, but the tax savings from the credit may not offset the additional costs of the premiums.

There is potential to deduct the premiums paid against self-employment income if you operate your farm as a sole-proprietorship or partnership, as opposed to taking the medical credit.

However, the amount that is de-ductible varies depending on how much of the premiums you cover for employees who are not family members.

If your operation has no unrelated employees, the deductible portion is capped at $1,500 each for you and your spouse and $750 for each child. Depending on the family and the operation, this is hardly enough to cover the costs of medical expenses.

An alternative option is a private health services plan, which requires special tax planning.

If your business is registered under such a plan, you would personally submit claims to the PHSP, as well as cheques to cover medical expenses and administrative fees.

The PHSP then mails a cheque for the full amount of the expense to you personally, which you receive tax free.

Your company is then able to claim the amount equal to the medical and administrative fee as a deduction, like any other expense.

This transfer of cash allows for 100 percent of the costs to be deducted by your business. The deduction provides greater tax savings than the medical credit can offer in most cases. Also, the amounts the PHSP pays to you personally are tax free.

Therefore, by using a PHSP, you get money out of your business, tax free, to pay your personal medical expenses, while your business benefits from the tax deduction.

A PHSP can be used on its own or in combination with existing group insurance coverage.

Procedures that you would otherwise not be able to claim in a traditional health plan are sometimes eligible for coverage through a PHSP.

These plans can be a great way to reduce costs, customize benefits and maximize tax deductibility.

PHSPs are simple to use, regardless of the size of the business.

Different employees can receive different levels of coverage, or no coverage at all, but the operation has to offer it to all of the employees to qualify.

The size or type of business has no bearing on eligibility: companies, partnerships and sole-proprietorships are all eligible.

These plans can also be a great tool for retaining farm employees.

If the PHSP administrator is not a tax specialist, I strongly recommend you seek the advice of a qualified tax practitioner who will be able to review the plan and ensure it meets all criteria and clarify the eligibility of the expenses associated with the PHSP.

PHSP plans are not for everyone and like any decision, you need to consider what is ideal for your specific situation.

How your family should pay for medical expenses should be discussed with an adviser to ensure you have all the information to make an informed decision.

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