Today I want to discuss the self employed health insurance of an S Corporation deductible by it’s shareholders. If not done correctly you can lose the deduction altogether.
The health insurance of a more than 2% shareholder has to be deducted on the S Corp as salary. This means adding it to the shareholder’s taxable wages on the W2 for only federal and state income taxes, not FICA, Medicare or other local taxable wages. This allows the S Corp to deduct the health insurance. The only issue then is reducing the W2 wages on the shareholder personal income tax return. This is done by reducing the AGI by the self employed health insurance deduction in the adjustments section of Page 1 of form 1040. So the wages return to pre-health insurance amounts.
If not done correctly, the IRS can disallow the self employed health insurance deduction on the 1040 and then there is no place to deduct that insurance on the S Corp, because it is not a deductible item. This is the only IRS allowed way to deduct health insurance on an S Corp, so keep it in mind. Be sure to call me at 818-317-6035 or 818-333-5095 or email me at bstonercpa@sbcglobal.net with questions.
Tomorrow I will discuss more medical expenses, including mileage and incidentals.
You can count on us to count for you!