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Long term care and 2% shareholder?

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    Long term care and 2% shareholder?

    Client is more than 2% shareholder and pays long term care insurance, is this treated exactly the same as the health insurance, in box 1 of W-2, but not box 3?

    Thank You, Ken

    #2
    TTB, page 4-7, "Amounts paid for qualified long-term care services and qualified long-term care insurance contracts are deductible as medical expenses."

    TTB, page 13-27, "A more than 2% shareholder of an S corporation performing services as an employee treats medical benefits as taxable wages."

    In other words, the more than 2% shareholder rule where expenses are added to the W-2 apply to all medical expenses paid by the S corp, not just medical insurance. So it does not matter whether the long-term care benefits are treated as insurance or medical expenses, they must be added back to the W-2 wage of the more than 2% S corp shareholder.

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      #3
      So what is the advantage of having the S-Corp pay the long-term care premiums when it is a net zero impact on the S-Corp but is added to the taxpayers W-2 and thus hits the 1040 as income yet it is doubtful that the taxpayer is able to deduct the LTC as an itemized deduction unless a portion exceeds 7.5% of AGI. What am I missing here?
      "The hardest thing in the world to understand is the income tax" - Albert Einstein

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        #4
        The net effect is zero, but if there are multipe shareholder/officers in the S-corp and medical insurance premiums are different for different shareholder/officers, then in theory the S-corp status could be inadvertently terminated due to there being unequal distributions. It's best to handle these things in the manner IRS has designated to avoid unpleasant surprises.
        "The only function of economic forecasting is to make astrology look respectful" - John Kenneth Galbraith

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          #5
          Originally posted by bbrownatl View Post
          So what is the advantage of having the S-Corp pay the long-term care premiums when it is a net zero impact on the S-Corp but is added to the taxpayers W-2 and thus hits the 1040 as income yet it is doubtful that the taxpayer is able to deduct the LTC as an itemized deduction unless a portion exceeds 7.5% of AGI. What am I missing here?
          Some states allow a deduction for LTC premiums (whether they itemize or not.)

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            #6
            I must be missing something in this post. So, I'll post anyway: LTC insurance is in the same group as Health Insurance for the self employed. The worksheet for this includes it at any rate and the result is an adjustment on page one. There are special rules we all know for S-Corps.
            (I'm looking at 2007 Pub 535 page 19.)
            JG

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