Life is full of costs, and it seems like they are always going up. If you’re like me, you probably don’t like to think about costs. Sometimes, it’s easy to think, “I’ll worry about that later,” or “I’ll pay that later.” But, it’s early November, and there is a substantial cost that is urgent and looming. Successful business owners and their advisors have only a few weeks to address this very important cost: The Cost Of Waiting To Set-Up Their Own Captive Insurance Company (CIC) – (CLICK HERE to read What Is A CIC). This cost is usually in the hundreds of thousands of dollars and can total as much as $600,000 in lost tax savings.
This year, we have written about the many benefits of owning one or more captive insurance companies. Businesses with a captive insurance company are better positioned for long term survival (CLICK HERE to read more). Businesses that own a captive insurance company benefit from a vastly improved risk management posture (CLICK HERE to read more). And, a captive insurance company forms the backbone or chassis for small / mid-size business Enterprise Risk Management (ERM) – (CLICK HERE to read more). Captives also facilitate significant wealth accumulation by business owners (CLICK HERE to read more).
Why Is It Important Now?
It takes 6 weeks to form a captive insurance company. Businesses with a calendar year fiscal ending on 12-31 still have time to form a CIC and pay tax deductible premiums to their CIC in 2015. The deadline to start the process is November 15!
What Is The Cost Of Waiting?
The cost of waiting to form a CIC in 2015 is hundreds of thousands of dollars. Assuming a combined federal and state income tax rate of 50%, the cost of waiting can be as high as $600,000. A small captive insurance company can make an 831(b) tax election. Its underwriting profits are taxed at a rate of 0% (zero percent). To qualify as a small insurance company, the CIC must receive premiums of less than $1.2 million. Taxes paid to the IRS are gone forever, leaving businesses and their owners poorer, weaker and less prepared for risk and uncertainty.