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 [...]
Brian’s Tax Musings
Let’s talk about medical insurance. As an itemized deduction, there are three kinds of insurance that the IRS allows as a medical deduction: regular health coverage and medicare supplement coverage, medicare part B paid either by you or through your social security and long-term care coverage. Long-term care coverage is deductible up to an age-based maximum (the IRS has a table or course.) All other medical coverage is all deductible except for the 7.5% of AGI I talked about yesterday.If you are self-employed (sole proprietor, LLC member,or an S Corp shareholder) you can avoid the AGI limitation and can deduct your insurance as self employed health insurance on the front of the return and deduct 100% of it.S Corporation self employed health insurance has to be treated a certain way to get this deduction. I will cover that on Monday. Any questions, call me at 818-317-6035 or email me at bstonercpa@sbcglobal.net You can count on us to count for you!
Brian’s Tax Musings
I am going to start a series of general tax deductions everyone should be aware of in the next few weeks. I plan to start in itemized deductions and then work into business deductions as an independent contractor. Today I am going to start at the top and over the next couple of days work through medical deductions.Always remember that all medical deductions are subject to an adjustment based on 7.5% of your adjusted gross income.for 2011. This means that you add up all of your medical deductions, then reduce them by 7.5% of AGI; the balance you can deduct as an itemized deduction. Tomorrow I am going to talk about medical insurance deductions, both for individuals and the self employed.Call me at 818-317-6035 or email me at bstonercpa@sbcglobal.net if you have any questions.You can count on us to count for you!