By Karen Moeller

High cost of health insurance got your small-business budget in a bunch? AgriPlan/BizPlan, a tax reduction service based in Adel, Iowa, estimates that in 1995, 40,000 self-employed business owners each saved an additional $1,800 in taxes through a provision in the Internal Revenue tax code.

The deduction, under IRS Tax Code Section 105, applies to married, self-employed taxpayers who formally hire their spouses as employees. If your spouse receives a salary for services performed for your business--even if he or she holds another job elsewhere--you can deduct 100 percent of your family's health-insurance premiums and non-insured medical expenses.

But be forewarned: the deduction is recommended for businesses with three or fewer employees, because the law requires employers to include all employees in the plan. For businesses with more than three employees, the cost of including them all may outweigh the savings benefits of the deduction.

"This plan works best for companies with one to three employees," says president Phillip Harrington, "because even if you are covering their expenses, it will still be to your benefit. If you have 20 employees, you could still use the Section 105 deduction, but quite frankly, you're better off getting a cafeteria plan like most larger companies do. The Section 105 deduction is truly meant for the mom and pop operation."

AgriPlan/BizPlan will act as a third party administrator--setting up a Section 105 deduction plan to comply with IRS, Department of Labor and Employee Retirement Income Security Act (ERISA) regulations--for $175 per year. "We don't prepare taxes, we don't sell insurance programs--all we do is administer Section 105 deductions," says Harrington. "And because we're national, we can do it inexpensively."

All plans are backed with an audit guarantee. If you think your small business might qualify for this little-known deduction, talk to your accountant. You can also contact AgriPlan/BizPlan directly at (800) 298-2923, or write to P.O. Box 267, Adel, IA 50003.