Basic Fringe Benefits

April 13, 2006

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The value of so-called fringe benefits can enhance your total compensation enormously. Many have the advantage of being deductible to your business but not taxable to you. These "welfare" benefits include medical and dental coverage and group term life insurance up to $50,000.

Warning

While C corporations can fully deduct the cost of medical insurance for owners as well as employees, there is a limitation on medical benefits provided to partners, proprietors and S corporation shareholders who own more than 2 percent of the stock.

These costs are deductible by the business but must be reported as income to the owners. On the owner's tax return, 100 percent of the insurance premium is deductible beginning in 2003.

If your spouse is an employee of your business, however, group insurance premiums will be deductible for the spouse and for you as well, as you are the spouse of an employee and qualify for coverage. This is a good reason to consider hiring your spouse!

The whole laundry list of fundamental fringe benefits — medical, dental, disability and group life coverage, dependent care and education assistance, business travel expense reimbursement, director liability insurance, employee discounts, spousal death benefits, group legal coverage, low interest loans, company cars, professional association dues and subscriptions (and maybe even use of the company gym) is all very nice — but the real wealth-building benefits to small business owners come in two forms: retirement plans and life insurance.