Questions on Health Insurance for Shareholder in S Corporation

Aug 18, 2008 3 Replies

Some benefits for a major shareholder of a S Corporation cannot be deducted as expenses of the S Corporation. For example, the cost of health insurance for the shareholder - if paid for by the S Corporation - is passed through to the shareholder, where he will take that as a deduction on the personal return. My question is what does the accounting for this look like on the books of the S Corporation, and how does this affect shareholder basis?



Does the S Corporation do a journal entry to remove the health insurance as an expense, and to move it to the shareholder as a distribution?



Does the shareholder reduce his basis in the S Corporation by the amount of the health insurance distribution?


"nobody" wrote

Please keep in mind that items that are legitimate and proper deductions for financial reporting aren't always deductible for tax purposes.

The "S" Corp can book an accounting expense for the health insurance for the shareholder. They can not take a ~tax~ deduction for that expense. There would be an adjustment on the M-1 for this, as well as for contributions, and other items that were taken for financial purposes that differ for tax purposes.

Hey, Whoa, Slow down. What about the very very very very complicated rules for health insurance premiums paid by an S corporation for its

2%-or-more shareholder-employees and treated as "SE health insurance premiums" by those 2%-or-more shareholder-employees. The insurance premium expense is definitely deductible, as compensation to the shareholder-employee, and it's included as compensation on his W-2 and the accounting on the corporation's tax books is pretty straight- forward. The premium is deductible as a current (compensation) expense and lowers the taxable ordinary income of the corporation, and all the shareholders' shares of K-1 ordinary income/loss. Huge amounts of taxpayer and gummint time and effort have been invested in working this out, over and over, and explaining it and re-explaining it....

Also let's remember that corporations can't pay health insurance for shareholders. ONLY if a shareholder might also be an employee of the corporation can it be done.

ChEAr$, Harlan Lunsford, EA n LA

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