Basic Fringe Benefits

The value of fringe benefits can enhance your total compensation enormously. Many benefits have the advantage of being deductible to your business, but not taxable to you. Among the benefits that are deductible by your business but excluded from your taxable income are medical and dental coverage, long-term care coverage, flexible spending account salary reductions, some educational benefits and group term life insurance up to $50,000.

Warning While C corporations have been able for many years to fully deduct the cost of medical insurance for owners as well as employees, only recently were the limitations removed on the deductibility of medical benefits provided to partners, proprietors and S corporation shareholders who own more than 2 percent of the stock. These costs were previously deductible by the business, but had to be reported as income to the owners. Now, health insurance premiums for you, the business owner, and your family are deductible on Line 29 of your Form 1040.

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.