Tax Implications For Captive Insurance Companies

garyeastwood
Loess Hills Accounting
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Captive insurance companies have long been relied upon by some of the nation’s largest and wealthiest companies when it comes to insuring their assets, but many accountants and business professionals are unfamiliar with the ins and outs behind captives that make them so interesting and useful on the market. Accounting gurus who want to stand apart from the rest understand that there’s no such thing as too much studying when it comes to the dirty details of taxes.

If accountants want to make themselves of use to clients when it comes to knowing about captive insurance companies, they need to review these key tax implications of captives first.

Captives are used by just about everyone

First and foremost, accountants wholly unfamiliar with captives need to learn that they’re being used by just about everyone these days. Captive insurance companies, or insurers that are wholly owned by another company which then relies on that insurer to cover their own assets, have traditionally been relied upon by major companies with excess capital sitting around. These days, however, even smaller companies are coming to realize the potential in leveraging a captive insurance company for tax purposes.

Emerging trends in the captive insurance industry show that businesses of all stripes, including ones using a car calculator, are coming to wholly own their own insurers for tax benefits, after all. This really should come as no surprise, given that many companies can secure tax deductions and savings opportunities only if they have a captive for their insurance purposes. Perhaps the most important thing that accountants unfamiliar with captives but interested in learning more about them needs to know is that they’re best for businesses that are currently wholly uninsured or underinsured, and are ideal for clients who are very interested in asset protection.

Accountants also need to understand that recent tax reform efforts have changed captive insurance companies. If financial professionals are interested in offering their clients advice when it comes to the interesting world of captives, they should review how the new tax law greatly benefited captives and made their use more lucrative in the market. That way, they can make a more compelling pitch to clients or superiors when it comes to relying on a captive in the near-future.

Those accountants interested in offering new financial opportunities to their clients will likely want to review the many reasons why a business may want to form a captive. Whether it’s taking advantage of new tax opportunities or merely saving on insurance costs by relying on a wholly owned subsidiary, captives offer many ways of boosting revenue for businesses large and small alike.

Running a captive assessment

If you want to run a captive assessment to determine if creating your own insurance company is the right decision for you or your clients, you should begin by determining if your client is in a high or low risk industry. Similarly, your company’s insurance history could ultimately end up being an important factor in whether or not you end up relying on a captive. Your captive assessment should focus more on the new tax reform than anything else, as that was one of the largest regulatory changes to the captive insurance market in some time.

Take a deep dive into how the Tax Cuts and Jobs Act reshaped the captive insurance market, for instance, and you’ll come to appreciate how the new tax rates make it more enticing and financially lucrative for companies, especially larger corporations, to enlist the help of a captive. Relying on a captive is no small endeavor, and accountants should be prepared to extensively brief themselves on the intricacies of the insurance market in more detail if they expect to rely on a captive.

While today’s accounting world is a rapidly changing and oftentimes scary place, there are still certain tricks like relying on a captive that accountants can recommend to their clients to help make the financial chaos seem more manageable. CPAs and financial gurus interested in saving their clients significant sums of money when it comes to insurance costs should begin looking into creating a captive immediately, but should expect to have their work cut out for them when it comes to taking full advantage of our complex insurance market.

About garyeastwood

About garyeastwood

Gary Eastwood is a CPA licensed senior accountant from Seattle, Washington. He received his CPA license from the Washington State Board of Accountancy in 2001 before relocating to Onawa, Iowa in 2008. Over more than 15 years of accounting experience, Gary has worked with multinational health service providers and independent CPA firms. He has a proven ability in dealing with business clients from a variety of backgrounds as well as leading companies to greater efficiency and profitability. He is familiar with both US GAAP and China GAAP.

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