Year-one savings
$423,000
1
Start with your business
Three inputs. Everything below recalculates the moment you change one.
Of every $1,000 you earn today
$423 to tax
At your combined rate, this is what leaves your business out of every additional $1,000 of profit — before you've spent a dime of it.
The opportunity
$423 redirected
A captive takes dollars that were headed to the IRS and puts them to work insuring your risks — inside a company you own and control.
2
Insure your own risk
An 831(b) captive is a small insurance company you own. Your business pays it real premiums for real risks commercial carriers exclude — business interruption, supply chain, disputes, key people. Premiums are deductible to the business, and when claims stay low, the surplus builds a war chest for you.
Slide it
Year-one tax savings
$423,000
Premium × your combined rate
Coverage in force
$2,000,000
Illustrated at 2× premium — real protection for uninsured risks
10-year tax savings
$4,230,000
Same premium each year, before any growth
Your Business→
Deductible premium→
Your captive→
Claims paid
+
Surplus you own
3
The ten-year picture
Two things grow at the same time: the tax savings you keep each year, and the surplus building inside the captive — your war chest. Here's both over a decade, side by side.
Year one — kept & working
$423,000
First-year tax savings at your premium and combined rate.
Year one — without action
$423,000
The same dollars, paid to the IRS and your state — gone from the balance sheet.
Tax savings invested at
Captive surplus after claims
Combined
10-year tax savings, invested
$2.45M
Each year's savings reinvested at your growth rate
10-year captive surplus
$2.02M
Your war chest — accessible via dividends or loans
Combined 10-year wealth
$4.47M
Tax savings + surplus, working for you instead of gone
The cost of waiting
Every year without a captive is a year of savings that never existed and never compounds. Measured against a 10-year horizon at your inputs:
Wait 1 year
−$850K
never recovered
Wait 3 years
−$2.3M
never recovered
Wait 5 years
−$3.5M
never recovered
✓
The two-minute version
What is an 831(b) captive?
A small insurance company you own, permitted under Section 831(b) of the tax code since 1986 — the same year Congress created the modern 401(k) rules. Your business pays it premiums — deductible, up to $2.9M per year (2026 limit) — to cover real, fortuitous risks commercial policies exclude.
When claims stay low, surplus builds inside the captive and comes back to you through distributions or loans — so when the opportunity to buy another business shows up, or early retirement starts looking real, the war chest is there. Business owners describe a well-run captive as insurance that can pay you back.
What makes it legitimate?
To qualify, the arrangement must operate like real insurance and pass a four-part test: genuine risk transfer out of the operating company, risk distribution across many unrelated insureds through risk pools, coverage of fortuitous risk rather than ordinary business costs, and adherence to the ordinary principles of insurance — real underwriting, real policies, a real claims process.
That structure is the whole ballgame. Designed and administered correctly, it's a risk management tool first — the tax treatment is the incentive Congress built in to encourage it.
Like what the slider is telling you?
These numbers are an illustration — your real design depends on your revenue, your risks, and your goals. The next step is a 30-minute conversation: we look at your actual exposures and size a premium that holds up to scrutiny. Bring your CPA. We like it when the CPA comes.
Important disclosures. All figures and calculations on this page are for illustrative purposes only, do not represent actual outcomes for any client, and should not be relied upon as such. This page does not provide legal, tax, insurance regulatory, or investment advice — consult your own advisors.
Tax savings should not be the primary reason for any transaction. The IRS may deny deductions for transactions primarily motivated by tax benefits and could deem a captive formed mainly for tax purposes invalid. Captives should be established primarily for risk management and asset protection, with clear documentation of non-tax purposes. Certain micro-captive transactions are subject to IRS disclosure requirements; consult your independent tax advisor.
Captive tax treatment is deferral, not elimination: investment income inside the captive is taxable, and distributions are generally taxable to shareholders at qualified dividend rates. Growth rates shown are hypothetical and not guaranteed. State tax treatment varies. The 831(b) premium limitation of $2,900,000 applies to taxable years beginning in 2026 and is indexed annually.