Incorporated Business Owners: Are You Paying Medical Expenses the Wrong Way?
If you’re incorporated, there’s something a lot of business owners don’t realize when it comes to medical expenses.
Did you know that CRA-allowable medical expenses can potentially be paid through your corporation instead of personally?
This is done through something called a Health Spending Account (HSA), and honestly, I didn’t even know this existed until last year.
Before learning about HSAs, we had been paying all of our medical expenses personally out of pocket using after-tax dollars — which is what I think most incorporated business owners assume they have to do.
But with an HSA, eligible medical expenses such as:
- Massage therapy
- Dental work
- Prescriptions
- Vision care
- And many other CRA-approved expenses
…can potentially be processed through your corporation instead.
That means the company covers the expense, and the amount may become fully deductible to the corporation.
Why does that matter?
Because when you pay personally, you’re using money that has already been taxed. But when the corporation pays for eligible expenses through an HSA, you may avoid having to pay personal tax on that income altogether AND your corporate income is reduced as well which means less taxes!
Last week I processed a claim through my own Health Spending Account for $4,021!
That meant:
- Those medical expenses were covered through my company
- I did not have to pay personal taxes on that money first before paying the expense
I can honestly say this was one of those business strategies I wish I had learned about much sooner. I know a lot of incorporated business owners are paying for medical expenses personally simply because they have never heard about this before!
If you’re incorporated and want to learn more about how Health Spending Accounts work, feel free to reach out and I’d be happy to send over the overview I was given.