Deducting Medical Expenses Through an HRA

business competency entrepreneurship micro-corporations tax issues wealth Aug 15, 2025

Today’s Micro-Business Tactic: Deducting Medical Expenses Through an HRA

As a physician who owns a micro-corporation, you’ve probably learned that the tax code rewards business owners far more than it rewards employees. You already take advantage of mileage deductions, CME write-offs, and perhaps even the Augusta Rule. But there’s one powerful tax strategy many physician-entrepreneurs overlook: the Health Reimbursement Arrangement (HRA).

When structured correctly, an HRA can transform your personal healthcare expenses into tax-free business deductions. This isn’t about gaming the system — it’s about using the rules exactly as they’re written to keep more of your hard-earned money.

What is an HRA and How Does It Work?

An HRA is not health insurance. It’s an IRS-approved, employer-funded plan that allows your business to reimburse employees (including, in some cases, you and your family) for out-of-pocket medical expenses.

Instead of paying these costs personally with after-tax dollars, your micro-corporation writes them off as a business expense, and you receive the reimbursement tax-free.

That means:

  • 100% business deduction for your corporation.

  • Tax-free income for you personally.

Why HRAs are a Game-Changer for Physician-Entrepreneurs

  1. Covers a Broad Range of Expenses — Beyond premiums and deductibles, you can reimburse:

    • Prescriptions & OTC medications

    • Vision care (exams, glasses, contacts)

    • Dental work (including orthodontics)

    • Chiropractic & acupuncture

    • Mental health counseling

    • Medical devices & home modifications for medical necessity

  2. No Contribution Limits — Unlike an HSA or FSA, there’s no cap. You can reimburse whatever your family actually spends.

  3. Retirement Potential — With a Section 105 HRA, you can even reimburse Medicare premiums in retirement tax-free.

  4. Flexible Structures — Different entity types can still benefit, even if you’re an S-Corp owner (more on that below).

Choosing the Right HRA Structure for Your Practice

For S-Corporations: Owners can’t directly benefit — but there’s a spousal workaround:

  • Hire your spouse as a W-2 employee.

  • Offer them an HRA covering their family (which includes you).

  • All reimbursements are tax-free and fully deductible.

For C-Corporations: You have the most flexibility — C-Corps can directly reimburse owners, spouses, and dependents with no hoops to jump through.

For LLCs/Sole Proprietors: Like S-Corps, you can use the spousal workaround or a Qualified Small Employer HRA (QSEHRA) if you have employees.

Case Study: How One Physician Saved $24,000/Year Using an HRA

"Dr. P" came to me frustrated with rising healthcare costs. As an S-Corp owner, she was paying over $22,000 per year for premiums, deductibles, and out-of-pocket care, all with after-tax dollars.

We implemented the spousal HRA strategy:

  • Her spouse became a part-time W-2 employee handling billing and compliance tasks.

  • We set up a compliant HRA plan document.

  • Every medical expense, from premiums to their child’s orthodontics, was reimbursed tax-free.

The result:

  • $22,000 in medical expenses became a full business deduction.

  • She saved $24,000 in taxes that first year.

Her reaction? “Why didn’t I do this 10 years ago?”

Steps to Maximize Your HRA

  1. Get a Written Plan Document – You must have a compliant plan (I recommend a CPA or attorney draft it).

  2. Track Every Expense – Keep receipts, EOBs, and proof of payment.

  3. Reimburse Promptly – Cut a check from the business account, not your personal account.

  4. Stay Compliant with IRS Rules – Especially important if using the spousal workaround.

  5. Consider a Third-Party Administrator – This adds credibility and ensures you’re audit-ready.

Lessons from the Field

“This week, one of my clients realized they were overpaying taxes by $24K/year… all because they didn’t know an HRA existed for micro-corporations. Now, every dollar they spend on healthcare runs through their business — and their tax bill is thousands lighter.”

📥 Tool of the Week: Health Insurance, HSA, HRA Options for Self-Employed Physicians

This free e-book will help you compare health benefit options and choose the right structure for your micro-corporation. You’ll learn exactly how to set up an HRA and integrate it into your tax strategy. 📥 Download the Tool →Health Insurance, HSA, HRA Options for Self-Employed Doctors

Other Resources to Boost Your Tax Strategy

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