on schedule A as a medical expense.
IRS Notice 2008-1
Health Insurance Purchased in Name of Shareholder
The insurance laws in some states do not allow a corporation to purchase group health insurance when the corporation only has one employee. Therefore, if the shareholder was the sole corporate employee, the shareholder had to purchase his health insurance in his own name.
It stated that under certain situations the shareholder would be allowed an above-the-line deduction even if the health insurance policy was purchased in the name of the shareholder. It provided four examples, including three examples in which the shareholder purchased the health insurance and one in which the S corporation purchased the health insurance.
It states that if the shareholder purchased the health insurance in his own name and paid for it with his own funds, the shareholder would not be allowed an above-the-line deduction. On the other hand, if the shareholder purchased the health insurance in his own name but the S corporation either directly paid for the health insurance or reimbursed the shareholder for the health insurance and also included the premium payment in the shareholder’s W-2, the shareholder would be allowed an above-the-line deduction.
The bottom line is that in order for a shareholder to claim an above-the-line deduction, the health insurance premiums must ultimately be paid by the S corporation and must be reported as taxable compensation in the shareholder’s W-2.
So if basically I lost a sizable above the line deduction by paying my premiums out of pocket rather than having the business pay for them?
Dems the rules ... you really should be taking a wage and being issued a W-2 from the S-corp ... fastest what to be audited is for an 1120S to not have any shareholder wages.
Yes. Well, actually you lost the sizable amount of money because you are trying to do the corporate taxes yourself, rather than a good tax professional. This is just one of MANY reasons why most corporations should be handled by tax professionals, rather than Do-It-Yourselfers.
HEY BILL! I did not do my corporate taxes myself. I have been through 3 different cpa's in 3 years who all messed up in a significantly costly way. The first one didn't depreciate any of my rentals, second did not allocate significant carry over losses, now the third messed up my health care. Everybody is too busy and does not take enough time to do things correctly.
Critter #2 I do take a w2 wage from my s-corp.
Yikes, you have had a bad run of tax professionals. For the future, I do recommend asking friend/family for recommendations, and/or going to an "Enrolled Agent" (although fewer Enrolled Agents do corporate returns than CPA that do corporate returns).
In SLIGHT defense of the CPA that did not tell you about the health insurance, it would be easy for them to either assume that you knew about because you had a corporation for several years, and/or because they were not doing your personal tax return, they had no reason to ask about your health insurance situation (and nothing could be done after-the-fact anyways).
Sadly the IRS expects you to know the laws that effect your type of return and if you don't have the time to learn about them yourself then seeking professional assistance is needed. Actually what you needed was a good bookkeeper, health insurance agent or financial counceler versed in tax laws ... these for the health insurance changed a couple of years ago and many people have been caught off guard. If you were using a reputable payroll company they would have educated you ... I know 2 reps from 2 national payroll companies who are always sending me information on the changes which do include health insurance issues. It is too late for 2017 and probably for 2018 but you can change if for 2019 at least.