Employer paid life insurance

[akumarz]

Hi,

I am planning to set up a S Corp firm for IT services (I am software consultant) and being the only employee of the firm. The firm will pay me salary.

After setting  firm up, I am also planning to buy a life insurance through the firm so premiums are paid by the firm. The firm would be the policy owner, I would be the insured and the beneficiery would be my wife.

Please advice me the benefits and taxes.
Will the premium tax deductible from firms  accounts?

Would I need to include the premiums in my taxable income?

If anytime I need to take a permanent employee position after terminating job the from the job , can the insurance be transferred to me?

Thanks in advance for clearing up my doubts and guiding me.

Thanks,
A.Kumar

[Carl]

Any benefits provided by the corporation on behalf of an owner/shareholder/employee of that corporation, is taxable income to the recipient of that benefit. It's value is included in box 1 of their W-2 (if employee) and/or on the K-1 if they are an owner/shareholder.  Who owns the policy is irrelevant. If it's for the benefit of the employee/owner/shareholder, then it's taxable income to the recipient.

[akumarz]

Thanks Carl. However, can the premiums can be deducted as expenses by the firm, thus bringing down the total taxable income for the year?

[Carl]

Not directly. The premiums are reported as a part of the taxable income to the beneficiary recipient. They are included in the deductions taken by the corporation for owner/officer/employee compensation. The corporation will deduct them as part of the employee compensation deduction. The corporation will not, and can not deduct them as premium payments for anything that benefits the owner/officer/employee.

[klaserner]

My K-1 (Form 1120S) reflects an amount in box 17, Code V, as "life insurance for shareholders".  Where do I report this on my Form 1040?  Thanks!

[Carl]

If the corporation paid for life insurance to insure your life, that's just not a deduction on your personal tax return. It most likely was a deduction for the S-Corp, provided the S-Corp is the beneficiary of the policy. It's listed in box 17 so that the S-Corp itself can show the deduction, and what the deduction was for. @TaxGuyBill what other factors am I most likely missing/forgetting on this?

[klaserner]

Thanks, Carl.  Do I need to claim it as income or otherwise on the 1040?

[Carl]

The S-Corp deducted it already. You can't deduct it again.

[klaserner]

That's not my question.  Do I need to claim it as income?

[Carl]

That depends. If the policy is a part of your compensation package, then the cost of it should be included in your income reported on the K-1 or W-2 and taxable. However, if the business "owns" the policy, then it's not income to you.
One drawback is that if the business claims it as a tax deductible business expense, then the payout is taxable income to the beneficiary recipient. Otherwise, if the business pays taxes on that money, then uses that money to pay the policy premiums, then any payout is not taxable income to the beneficiary recipient.