It’s not fun to think about costs. Sometimes, it’s easy to think, “I’ll worry about that later,” or “I’ll pay that later.” In business, opportunity costs are often more important than operational costs.
It’s mid-November, and there is a substantial opportunity cost that is looming for many small and mid-market businesses. Successful business owners and their advisors have only a few weeks to address this important opportunity cost:
The Cost Of Waiting To Set-Up Their Own Captive Insurance Company (Captive)
This cost often totals hundreds of thousands of dollars and can total as much as $1,000,000 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. Businesses that own a captive insurance company benefit from a vastly improved risk management posture. And, a captive insurance company forms the backbone or chassis for small / mid-size business Enterprise Risk Management (ERM). Captives also facilitate significant wealth accumulation by business owners.
Why Is It Important Now?
It takes 4 to 6 weeks to form a captive insurance company. Businesses with a calendar year fiscal ending on 12-31 still have time to form a Captive and pay tax deductible premiums to their Captive in 2017.
What Is The Real Cost Of Waiting?
The costs of waiting to form a Captive in 2017 are unnecessary vulnerability and hundreds of thousands of dollars.
First, by waiting a business forgoes improved risk management and a blanket of insurance protection that the captive insurance company provides their business. Also, the captive benefits from a reinsurance pool backstop. If calamity strikes, businesses with a captive are far better prepared.
Second, assuming a combined federal and state income tax rate of 50%, the cost of waiting can be as high as $1,100,000. 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 Captive must receive premiums of less than $2.2 million. Taxes paid to the IRS are gone forever, leaving businesses and their owners poorer, weaker and less prepared for risk and uncertainty.
http://www.captivatingthinking.com/what-is-a-cic/
http://www.captivatingthinking.com/are-taxes-weakening-your-business/
http://www.captivatingthinking.com/captive-insurance-companies-as-a-buffer-against-extreme-risk/
http://www.captivatingthinking.com/is-it-time-for-your-risk-management-strategy-to-grow-up/