Avoid This Family-Member S Corporation Health Insurance Mistake

There are two important issues related to health insurance deductions for S corporations.

Issue One

First, if you own more than 2 percent of an S corporation, there are three steps you need to follow to claim a deduction for health insurance:

• Step 1. The cost of the insurance must be on the S corporation’s books.
• Step 2. The corporation must include the cost of the health insurance premiums on your W-2 form as taxable income (but not subject to payroll taxes).
• Step 3. If eligible, you must claim the health insurance deduction as an above-the-line deduction on Schedule 1 of Form 1040.

Issue Two

Second, this three-step procedure applies to your spouse, children, grandchildren, great-grandchildren, parents, grandparents, and great-grandparents if they work for your S corporation and the corporation covers them with health insurance.

The three rules apply to the relatives listed above who work in the S corporation, even if they don’t own any stock directly. For health insurance purposes, the tax code attributes your stock ownership to them and deems that they own what you own.

It’s crucial to get this right, as failing to do so could result in a lost health insurance deduction for your family members and zero deductions for the S corporation.

If you or your S corporation did not handle this correctly in the past, you need to amend the returns to ensure that you create and protect the proper tax deductions.

How We Can Help

Sterling Tax and Accounting is here to help your business with tax planning! Our comprehensive approach to tax planning helps reduce your overall tax liability and keep more money in your pocket. If all your accountant does is file your taxes, chances are they are making you pay more than your fair share of taxes.

Learn how to proactively save on taxes by scheduling a call with our tax planning specialists.

Our tax planning, accounting & business services help you stay on track. Sterling Tax & Accounting will work with you to optimize your business and minimize your taxes. We will work to provide you and your business with the tools and resources you need to build a solid tax and business foundation. We’re a trusted CPA Firm in Sarasota, Florida. We serve clients all over the US, and proactively work to minimize their taxes.

Welcome to the Sterling Standard of business! Want to learn more? Schedule a meeting with our tax planning team here: https://www.srqtax.com/contact-us/