Successful businesses in many fields, including retail stores, restaurants, manufacturing companies, healthcare, and construction form and use captive insurance companies under 831b tax code as a primary risk management and planning tool. For a large portion of these businesses, managing and financing risk becomes more and more difficult as their business continues to grow. If you find this to be true of your business, the following information on how these companies work might be of help.
Section 831b of the U.S. taxation code does not require small insurance companies to pay taxes on their annual premiums, provided that they make less than $1.2 dollars in premiums a year. The objective of this incentive (which is a special provision from Congress) is to encourage expansion in the insurance industry, but it has to be filed in the company's first taxable year, and can't be rescinded without the permission of the Secretary of the Treasury.
This provision doesn't alter the captive's position as an insurance company; the only change is that their premiums are not taxable. Also, the provision requires that companies pay taxes on investment earnings (minus any deductions), and doesn't allow them to deduct for insurance losses, or to deduct these insurance losses against their investment income. The end result is that a captive could pay more income tax with an 831b election, than if it had opted for the 831a, therefore any company considering their taxation options should consider the two closely, and may want to consult a tax advisor to walk them through the process.
After considering their earning details, this is the best tax election for many insurance companies, and one that allows them to manage the employee benefits and other related aspects of their client companies. These employee benefits could include major medical coverage, executive compensation, medical benefits plans, prescription drug coverage, life insurance, short term and long term disability, retirement benefits, pension funds, accident and health insurance, and some self funded policies. Considering these taxation and insurance benefits, a large number of the previously mentioned companies would prosper if they owned a captive insurance company.
There are many captive managers that businesses can use to help them evaluate, form, manage their own captive insurance company, which provides an practical way to avail themselves of the benefits they provide. These Delaware captive advisors generally evaluate by doing a feasibility study to analyze various aspects of establishing an insurance company. They then form the company, draw up a business plan that describes the operation of a captive, and get the required licensing to run it. Then, they prepare customized accounting reports and tax documents, which you can review and modify as desired. They also manage insurance policy issues, financial records, claims, and assure that everything complies with governmental guidelines.
Section 831b of the U.S. taxation code does not require small insurance companies to pay taxes on their annual premiums, provided that they make less than $1.2 dollars in premiums a year. The objective of this incentive (which is a special provision from Congress) is to encourage expansion in the insurance industry, but it has to be filed in the company's first taxable year, and can't be rescinded without the permission of the Secretary of the Treasury.
This provision doesn't alter the captive's position as an insurance company; the only change is that their premiums are not taxable. Also, the provision requires that companies pay taxes on investment earnings (minus any deductions), and doesn't allow them to deduct for insurance losses, or to deduct these insurance losses against their investment income. The end result is that a captive could pay more income tax with an 831b election, than if it had opted for the 831a, therefore any company considering their taxation options should consider the two closely, and may want to consult a tax advisor to walk them through the process.
After considering their earning details, this is the best tax election for many insurance companies, and one that allows them to manage the employee benefits and other related aspects of their client companies. These employee benefits could include major medical coverage, executive compensation, medical benefits plans, prescription drug coverage, life insurance, short term and long term disability, retirement benefits, pension funds, accident and health insurance, and some self funded policies. Considering these taxation and insurance benefits, a large number of the previously mentioned companies would prosper if they owned a captive insurance company.
There are many captive managers that businesses can use to help them evaluate, form, manage their own captive insurance company, which provides an practical way to avail themselves of the benefits they provide. These Delaware captive advisors generally evaluate by doing a feasibility study to analyze various aspects of establishing an insurance company. They then form the company, draw up a business plan that describes the operation of a captive, and get the required licensing to run it. Then, they prepare customized accounting reports and tax documents, which you can review and modify as desired. They also manage insurance policy issues, financial records, claims, and assure that everything complies with governmental guidelines.
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This only covers the basics about section 831b requirements, benefits, and how financial managers can help. To learn more information about these subjects, click on 831b and also section 831b.