Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for January 2nd, 2006

Medical Benefits Under C Corp

Posted by taxguru on January 2, 2006


Subject: Children with special needs

Kerry –
We have a 3 year old daughter with special needs. Our out of pocket cost of care is approximately $45,000 per year. My wife is self employed and our CPA suggested we incorporate and run all of my daughters health costs through the corporation. He stated we can deduct that cost as a medical benefit. I have a couple questions.
1. Does this advice sound reasonable? Basically, our CPA says that we may have no deductions for medical costs in 2005 because of AMT??? He also says we can stagger income with the corporation which was just confusing.
2. Are there other options? or do we trust this advice.
I would love to see expanded coverage on these issues as developmental delays now impact 1 out of every 100 births and cost of care can be staggering. There is very little coverage out their yet the average family with a special needs child has over $20k in out of pocket health care costs.
Thanks for your response.


It sounds as if you have a well versed and creative thinking CPA on your team and that you are on the right track. 

The ability to have unlimited medical reimbursement plans is just one of the big tax benefits of using a C corporation, as I discuss on my website and blog.

Good luck.

Kerry Kerstetter


Any comments on the AMT issue? Thank you for such a rapid response and validation of the idea. Seemed to good to be true:-).

My Reply:

The insane AMT is hitting more people each year because our incompetent rulers in DC have refused to adjust the thresholds for inflation.

Under AMT, fewer personal Schedule A deductions are allowed.  With medical expenses, the regular tax allows everything over 7.5% of AGI, while AMT only allows what’s above 10% of AGI.

If used properly, having your C corp pay all medical costs should allow you to receive a tax deduction for all of them.  If you don’t have a corp, your AGI will be higher, making less medical costs deductible because of the 7.5% and 10% disallowances that are built into the 1040.

Your CPA should be able to show you more realistic figures for your particular situation.

Good luck.

Kerry Kerstetter


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