Tax

Have you established a 105-HRA, a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), or an Individual Coverage Health Reimbursement Arrangement (ICHRA) to reimburse your employees for medical expenses?

If so, congratulations! These HRAs are an excellent way to cover your employees’ medical expenses and claim a tax deduction.

But all three types of HRAs come with a pesky IRS filing requirement: each year, you must pay a Patient-Centered Outcomes Research Institute (PCORI) fee that is used to help support the institute.

The fee is small—currently, $3.47 times the “average number of lives covered” by your HRA during the previous plan year (likely your plan year ended December 31, 2024). There are several methods for calculating the number of lives covered.

You must pay the fee by filing Form 720 with the IRS by July 31 of the calendar year following the end of your plan year (July 31, 2025, for plans with a December 31, 2024, year-end). 

Paying the PCORI fee is a bit of a nuisance. But on the plus side, it helps prove the existence of your plan, and you get to deduct the cost.

If you need my assistance or would like to discuss HRAs, please call me directly at 408-778-9651.

• By Leon Clinton
• July 7, 2025

Could you use a quick infusion of tax-free cash? Your life insurance policy may provide one. And you don’t have to die to collect.

To access money from your life insurance policy without dying, you must have the right type of policy—a permanent life insurance policy that lasts your entire life, such as whole life, universal life, variable life, or indexed universal life. A cheap term life policy doesn’t provide any lifetime cash benefits.

Permanent life insurance includes a savings component. The insurance company puts a portion of your premiums into a cash value account, and this sum grows over time on a tax-deferred basis.

There are several different ways to tap into your policy’s cash value while you’re still alive:

• You can make partial withdrawals from your policy’s cash value account. Many insurers cap withdrawals at 75 percent to 90 percent of the total cash value. Withdrawals up to the account’s cost basis (total premiums paid) are tax-free. You pay tax at ordinary rates on withdrawals over your cost basis. You don’t have to repay the withdrawals, but they will reduce the policy’s death benefit.
• You can surrender your policy to your insurer, who will pay the total amount of the cash value account, less fees (which can be substantial if the policy is less than 10 to 15 years old). The payment is taxable at ordinary income rates to the extent it exceeds the total premiums paid.
• You can take out loans from your insurer using your policy’s cash value as collateral. Such loans often have lower interest rates than bank loans, and they are tax-free. Borrowing from your insurer does not affect your policy’s cash value—it will continue to earn interest and grow tax-free. You aren’t required to repay the loan, but if unpaid, it will reduce your policy’s death benefit.

You may be able to sell your policy to a third party, who will then make the premium payments and collect the death benefit when you die. This option is available only to older policyholders (over age 65) or those who are terminally ill or disabled. The sale proceeds for life settlements are taxable to the extent they exceed the premiums paid. But “viatical settlements” (those made by terminally ill or disabled policyholders) are tax-free.

If you want to discuss life insurance, please call me directly at 408-778-9651.

• By Leon Clinton
• July 2, 2025

Here’s an example that may be relevant to your tax planning strategy—particularly when it comes to travel for business purposes that may also offer a more comfortable or enjoyable experience.

Consider this case: A financial planner needed to meet a high-net-worth prospect in St. Thomas during the winter. Rather than have the meeting in snow-covered Boston in February, the planner opted to take a five-day, four-night cruise to the U.S. Virgin Islands. After two days of business meetings in St. Thomas, the planner returned to Boston by air.

The entire seven-day trip—including a pre-cruise hotel night in Miami—was classified as 100 percent tax-deductible business travel under IRS guidelines. This outcome is possible due to specific rules that apply when a trip is conducted solely for business purposes, with no personal leisure days included.

Key IRS considerations in this case included:

• Luxury water travel limits. For 2025, the daily deduction cap for cruise travel (January through March) is $1,150. The cruise fare must fall below this per-day limit to be fully deductible.
• Meal separation rule. If the cruise line does not itemize meal and entertainment costs separately, the full cruise fare (up to the daily cap) is deductible. If meals and entertainment are itemized, only 50 percent of the meal costs are deductible and you get nothing for the entertainment.
• Foreign travel rules. Though St. Thomas is a U.S. territory, it’s treated as a foreign destination for travel deduction purposes, allowing further tax planning opportunities.

This scenario illustrates how strategic travel planning, when aligned with IRS requirements, can create opportunities for tax-efficient business development.

If you would like to discuss cruise-ship travel, please call me directly at 408-778-9651.

• By Leon Clinton
• June 27, 2025