How your S corporation can deduct health costs

 

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The background: When it comes to the tax law governing health insurance for S corporations, things can get complicated, fast. For example, if your health care plan "discriminates" (which means that you give all of the health insurance to yourself and none to your employees), you're responsible for FICA and Medicare taxes. And that's just for starters. To make things simpler, check out the following Tax Tip that gives you a look at the "big picture." The Tax Tip: If you own more than two percent of your S corporation, and you want to claim the best possible deduction for the cost of your personal health insurance, here's what to do: Step #1: Your S corporation must pay for the health insurance and include the cost as a taxable wage on your W-2. (Sounds weird I know, but that's the way the law works!) Step #2: As the owner of the S corporation with the health insurance on your W-2, you now qualify to claim the health insurance as a self-employed health insurance deduction on page one of your 1040. Bingo! You're just created an above-the-line deduction for yourself! The takeaway message? As an S corporation owner, you can get a nice health insurance deduction . . . but you have to make sure that the S corporation pays for your health insurance or reimburses you for it . . . and then puts it on your W-2. Sincerely,     W. Murray Bradford, CPA Publisher Tax Reduction Letter www.bradfordtaxinstitute.com