S Corp. SH Health Insurance Deduction

[Unregistered]

Rather than adding health insurance to a shareholders W2, cant you simply treat it as a distribution (i.e. no deduction at the Corporate level) and then take the deduction on Form 1040?

[Bees Knees]

The instructions tell you to add it to the W-2. If you don't care what the instructions say, then do it the way you suggest. You will get the same result, except that you didn't do it the way the instructions tell you to do it...if that matters for anything.

[Matt Sova]

K-1

As I stated yesterday with the medical reimbursement plan, if the insurance was not included on the W-2 you can put it on line 12 of the K-1. Result in higher S-Corp income and SE HI deduction on page 1 of the 1040.

[JON]

Health Insurance And Schedule D

You can do anything you want, but the IRS has said for health insurance it has to be added to the W-@ to be deducted above the line on the 2% stockhoplders 1040. We stopped using the W-2 for 2004, Ultra Tax makes it easy to take it through as "other Deduction" and then I listen to s a speaker quoting verse for how to have it as an above the line deduction it "has" to be on the W-2. 2005 we went back to on the W-2s..

[OldJack]

Rather than adding health insurance to a shareholders W2, cant you simply treat it as a distribution (i.e. no deduction at the Corporate level) and then take the deduction on Form 1040?

The only problem with doing it as a distribution is that it implies the taxpayer has paid the insurance personally and the taxpayer of a S-corp is not a self-employed person. Without the notation on the W2 there is no justification for the deduction as a self-employed with health insurance. It is probably done that way all the time but it is not correct.

[Unregistered]

I do not understand - why not do it the way it is required especially when it does not make any difference any way. If we want to do it the way we want then why fill out 1040 - just write on paper and just send it to IRS and let everyone do their own way!!

[Unregistered]

I do not understand - why not do it the way it is required especially when it does not make any difference any way. If we want to do it the way we want then why fill out 1040 - just write on paper and just send it to IRS and let everyone do their own way!!

The reason it becomes an issue is because a lot of times, the W2s are prepared without the addition for health insurance and then us tax prepareres have to account for it later. Rather than amending W2s it would just seem simpler to deduct on the 1040 and treat as a distribution from the corporation. Your correct if its caught prior to sending in the W2s, its not a big deal.

[Bees Knees]

The reason it becomes an issue is because a lot of times, the W2s are prepared without the addition for health insurance and then us tax prepareres have to account for it later. Rather than amending W2s it would just seem simpler to deduct on the 1040 and treat as a distribution from the corporation. Your correct if its caught prior to sending in the W2s, its not a big deal.

Do it right and charge them for their mistake.

One issue why it shouldn't be treated as a distribution is the one class of stock issue. Say you have a 50/50 S corp with one shareholder's health insurance costing $4,000 and the other $3,000. The $7,000 cost as a deduction on the S corp means you pass through $3,500 in expenses to each shareholder. If you don't deduct the expense and treat it as a distribution, then one has a $4,000 distribution while the other has a $3,000 distribution. You just disqualified your S corp by allowing unequal distributions.

[veritas]

It's not that difficult to file corrected W2. We have often dome it.