Year End Tax Planning for Business Owners
By Trey Fairman, J.D., LL.M. November 20, 2020
Expert Interview: Long Term Care Insurance
November 10, 2020
Many of our business-owner clients are concerned about the trend towards higher income
taxes and wish to explore methods to create greater income tax efficiencies in the coming
years. Here are a few strategies we are exploring currently.
Strategy #1 - Retirement Plan Design (or Re-design)
We have been hearing from firms that they need help re-evaluating their 401k plans after the
recent events. Many plans are cookie cutter, one size fits all, generic “safe harbor” plans that
don't receive the support they need. By customizing a plan to your business, you may be able
to accelerate your personal retirement deferrals while also reducing current income taxes with
a “high deductible” retirement plan. Done properly, a business owner can set aside 2-10 times
more money pre-tax which reduces income taxes and increases personal retirement benefits.
Working with retirement plan specialist will also improve your employee experience and
satisfaction with the plan.
After Step #1….
After maximizing contributions to a high-deductible plan or in situations where the high-
deductible plan isn’t a fit, we typically explore two additional strategies for business owners…
Strategy #2 - Tax deductible contributions to fund long term care plans, and/or
Strategy #3 -Using after tax money to fund institutional insurance contracts to minimize or
eliminate future income taxes
Strategy #2 - Tax deductible LTC planning
As a business owner, you can deduct a large portion of the monies used to fund a long-term
care policy. These tax-deductible premiums create a much larger bucket of tax-free money to
pay for long term care. S-Corp business owners can typically deduct 40-60% of the premiums
while C-Corp business owners can 100% of the premiums.
Understandably, many of my business owner clients are currently exploring this planning
opportunity as well. I have attached a sample report of a plan we have recently shown to a
Strategy #3 – Institutional Insurance Contracts
This strategy uses an institutionally priced insurance contract to take advantage of favorable
Internal Revenue Service rules to lessen – or eliminate – future taxes on investment gains.
We structure the design to have the lowest cost insurance wrapper necessary to gain income
tax deferral while retaining access to the funds with the end goal being to provide a large
amount of non-reportable tax-free income. The wrappers can be annuity or life insurance
Additionally, in certain – but not all states, you can gain enhanced asset protection by using
these insurance wrappers.