S-Corp Life Insurance

[Unregistered]

I have a client who is the owner/sole employee of his S-Corporation in Minnesota. He is inquiring into the possibility of establishing a whole life insurance policy. His wife would be the beneficiary of this insurance policy and she has no role in the business. Is he allowed to deduct the insurance premiums as a business expense?

My inclination is to think this is not allowed, but he indicated that he knows an acquaintance who does something similar.

Thanks for the advice.

[BOB W]

Life insurance.,,,

No No No!!!!!!!!!!!!!!!!!!!!!!

[Uncle Sam]

S-Corp Life Insurance

Under the ordinary rules for ordinary employees, it would be permissable, since the corporation is not the beneficiary.
HOWEVER, he's a >2% shareholder- that makes the premium taxable to him as W-2 compensation. The corporation can take the deduction, however, it's taxable compensation to a >2% shareholder. §1372(b)

[Bees Knees]

It isn't just because he is a more than 2% shareholder. Employers providing life insurance as a fringe benefit to their employees must treat all life insurance benefits as taxable compensation to the employee. That is why it can be deducted by the employer, because it is treated as additional compensation to the employee.

The only exception to this rule is group term life insurance where coverage is $50,000 or less [IRC Section 79]. Whole life insurance would not qualify for exclusion under Section 79.