Health Insurance Deduction for LLC

[taxes246]

Hello

My wife and I each own 50% of an LLC. We purchase health insurance in our names and pay for it ourselves. We file a Form 1065 for the LLC as a partnership. Lets say the cost was $25,000 for the year paid by us. Is the correct way to handle this to record the $25,000 on the LLC as an expense with an offset to increase distributions due to the partners, and then to show the $25,000 as a guaranteed payment to the partners, which would appear on the K-1 ? Thanks

[AliciaP1]

If you choose to have the partnership "pay" for your health insurance, it is treated as a guaranteed payment only on the partnership side.  You would split the amount by the partnership ownership percentages and then report the Guaranteed Payments to each partner on your Form 1065.  You will then claim the Self-employed Health Insurance Deduction on your personal returns.

To enter your K-1s and claim the Self-employed Health insurance Deduction in TurboTax you can follow these steps:

1. Open your tax return, if you haven't already
2. Select Federal, then Wages & Income (this may show as Wages & Expenses depending on your program)
3. Scroll down and select Show more next to S-Corps, Partnerships, and Trusts
4. Start Schedule K-1
5. On the Did you receive any Schedules K-1? screen, select Yes
6. Select Start next to Partnerships/LLCs (Form 1065)
7. On the Partnership Name and Address screen, enter the info and select Continue
8. Continue entering your info
9. Once you get to the Check Boxes That Have an Amount screen, your K-1 should have an amount for Self-Employment Income and, if your partnership paid for the SEHI, an amount for box 13 with a code M.
10. You may have any number of other boxes that have amounts listed, as well
11. Once you have completed the entry of your box 13 code M (if applicable) and box 14 (required for a SEHI deduction), select Continue
12. Enter any remaining info for the other boxes on your K-1
13. On the Describe the Partnership screen, if you paid your own insurance premiums, check the box next to I personally paid health insurance and/or long-term care insurance premiums for myself and my family
14. If you checked the above box, you’ll see the Unreimbursed Partnership Expenses screen, Select Yes
15. Continue through the screens until you reach the screen for Any Self-Employed Insurance Costs? Enter any amounts you paid personally on these screens

Once you’ve completed your Schedule K-1 entry, your premium amounts will show as a Self-Employed Health Insurance Deduction on Schedule 1, line 17.

Note: Your deduction for SEHI may be limited by the amount of the self-employed income reported by the partnership (less the self-employment tax on that income).

[taxes246]

Thanks for your detailed response. I followed your steps and when I am prompted to enter the amount of health insurance premiums that I paid for myself, there is a note that says that if I purchased the health care insurance through Healthcare.gov I should enter the premiums in the 1095-A section instead. So I entered the premiums there. Is that correct?

Also, if I choose to can I set it up so that my LLC reimburses me for the premiums paid and then the LLC takes the deduction on the LLC return and then shows it as a guaranteed payment to me. 

Thanks very much!!

[RobertB4444]

Yes, entering the health insurance in the 1095-A section is correct for the marketplace insurance.

You can set it up as the LLC entering reimbursing you for the health insurance costs but you will still have to enter the marketplace information into the 1095-A.  That's an IRS requirement.  So having the LLC reimburse you just removes the self-employed health insurance deduction.

@taxes246 

[goonebear]

is LT care insurance premiums for the two partners also deductable. they paid for it themselves

[Vanessa A]

Yes, LLC partners will be able to claim these amounts on their personal returns as medical expenses.  As you walk through and enter your K-1's you will get to a part that asks if you paid for your own insurance, answer Yes.  Then you will be able to enter your LTC premiums as well as other medical insurance if you paid that yourself as well.  It will show up as self-employed health insurance deduction. 

Just remember, the Self-Employed Health Insurance deduction is limited to your earnings.  Meaning, you cannot deduct more than you earned.