Asset Growth

Internal Revenue Code 831(b) Producer Owned Reinsurance Companies (micro-captive)

In 1986 Congress adopted section 831(b) of the Internal Revenue Code specifically to encourage micro-captive insurance formations to strengthen US businesses and create significant tax incentives for doing so. These tax incentives exist to encourage their formation where it is suitable for businesses to efficiently finance insurable risks.

Despite this provision being nearly 30 years old, most professional business advisers still do not understand Captives, and as a result, tens of thousands of small to medium sized businesses that could benefit from Captives have not yet been introduced to them.

Efficient Asset Growth

A captive is an insurance company created for the benefit of its owners. By owning a SECURE Business Reinsurance Solutions captive, business owners can turn costly premiums into financial assets for the benefit of the company and its operating entities.

Because SECURE captives operate as a traditional insurance company, they can qualify for government-provided tax incentives that are intended to promote the growth of small insurance companies.

Captives can also grow reserve surpluses at a steady, tax deferred pace. The captive’s excess surplus funds can be distributed or accessed by the business owner on their own time frame and may be used to invest in expansion and for other financial needs of the business or its operating entities.

Ideal Qualifications for an 831(b) Micro-Captive

•         A business with annual revenues of $1 million – $250 million

•         Pre-tax operating profits of $400,000+ per year

•         Desire to reduce risk and protect assets

•         Desire to improve cash flow

In conjunction with the country’s very best Captive administrators, we can quickly and accurately evaluate how much benefit a SECURE Captive could provide you and your business in the areas of risk management, asset protection and tax planning.

A properly designed Captive Insurance Company arrangement can provide many advantages for the insured enterprise and the owner(s) of the captive. Professionals at SECURE will work with your legal and tax advisors, and coordinate the activities of our professional consultants, to help ensure that your captive arrangement is compliant and meets all requirements for successful implementation.

Micro-Captive Definition

A.M. Best’s Captive Directory uses this definition:

“A captive is an insurance company that is wholly owned and controlled by its insureds; its primary purpose is to insure the risks of its owners; the primary beneficiaries of its underwriting profits are its insureds.”

Deduct Up to $2.2 Million Per Year

An 831(b) Micro-Captive allows a business to deduct up to $2.2 million per year (effective 1/1/17) against ordinary income (while the Captive – a wholly-owned subsidiary of the business – receives the funds tax-free). It exempts, not merely defers, all operating income of qualifying Captives from federal income tax. This special tax benefit encourages small and medium sized companies to create these protective risk reserve assets, which they retain control over.

The restrictions that apply to 401k and other retirement plan assets do not apply to reserves in your Captive. When properly structured, they simply are a superior business and risk management tool for owners of successful businesses. And when integrated with estate and/or business succession planning, the wealth accumulation and protection benefits can be substantial.

The IRS repeatedly admits 831(b) micro-captives are legitimate tax favored risk management vehicles when formed and managed correctly.  Furthermore, effective 1/1/2017 the IRS raised the annual premiums limit from $1.2 million to $2.2 million in the support of captive owners.

Saving taxes should not be your sole purpose for forming a captive.