Self-employed Health Insurance - S Corporation

[Jiggers]

S-Corporation reports payments for >2% Shareholder as compensation on line 7 of the 1120-S and includes the same amount on the Shareholder's W-2.

S-Corporation shows a loss, which includes that amount.

For purposes of the Self-employed health insurance deduction on the Form 1040, you use only the W-2 income from the S-Corporation as the limiting factor. You do not net the loss from the K-1 to the W-2 income.

That is what I read in the TaxBook, pages 5-10 and 19-13.

So the Self-employed health insurance is deductible on the 1040, even with the S-Corp loss.

Correct?

[AuditorTurnedGood]

I believe that is correct, though it makes me wonder if the salary was reasonable given the loss position the S-Corp was in. I believe this is the same test as the limits for SEP plans involving greater the 2% shareholders - the W2 governs the calculation.

[Jiggers]

Amount is correct

I believe that is correct, though it makes me wonder if the salary was reasonable given the loss position the S-Corp was in. I believe this is the same test as the limits for SEP plans involving greater the 2% shareholders - the W2 governs the calculation.

Actually this is a first year tax return, and they needed health insurance. That is the only amount shown as wages on their W-2.

Not a large S-Corporation loss, but they do have basis by way of loans to the corporation. This year it will show a large income.

[AuditorTurnedGood]

A common occurance I'm sure. I still think you're right, the W-2 governs the ability to deduct. We'll see if anyone can prove me wrong - I'd be interested to find out myself.

[ChEAr$]

concur

A common occurance I'm sure. I still think you're right, the W-2 governs the ability to deduct. We'll see if anyone can prove me wrong - I'd be interested to find out myself.

Nobody can prove you wrong. Jiggers was right to begin with.