Tax Savings Strategies

Avoid This S Corporation Health Insurance Deduction Mistake

If you own more than 2 percent of an S corporation, you have to do three things to claim a deduction for your health insurance:

1. You must get the cost of the insurance on the S corporation’s books.

2. Your S corporation must include the health insurance premiums on your W-2 form.

3. You must (if eligible) claim the health insurance deduction as an above-the-line deduction on Form1040.

The three-step health-insurance procedure also applies under attribution rules (and this could be a surprise) to your spouse, children, grandchildren, and parents if they work for your S corporation, even if they don’t own a single share of S corporation stock directly.


With the correct W-2 treatment, the more than 2% shareholder who finds the health insurance premiums on his or her W-2 can claim the self-employed health insurance deduction on Form 1040, provided he or she is not eligible for employer-subsidized health insurance through another job or a spouse’s job.Tax Free Income from Rental of Home to C or S Corporation

The IRS allows a business owner to rent their primary residence or a vacation home, or a portion thereof, to their business for up to 14 non-consecutive days each year. The residence can be located anywhere in the United States, and the income is excluded from taxable income for the residence owner / business owner.  REQUIREMENTS include an established lease agreement between the business and residence owner, with rental pricing supported by researching and documenting comparable space for a similar event.   CAVEATS :As with most TAX STRATEGIES it pays to play the game according to the rules set forth in the Internal Revenue Code (IRC). There are some areas of use that you want to avoid.   Using the rental of any personally owned space for activities deemed ‘Entertainment’ in nature will likely disallow the tax-free nature of the transaction.  The term ‘Entertainment’ means for the entertainment of patients, prospects, or customers.   ONE EXCEPTION: the annual company Holiday Party or Summer Picnic.  The IRS has determined that the annual company Holiday / Summer Party are necessary and usual business expenses, and therefore an allowable business deduction.    Documentation is critical in preserving the tax-free nature of these transactions.  Make sure that you properly document your pricing research for comparing a similar facility’s rental cost.  This will ensure that you have proof of a fair rental amount.   Another way to ensure proper exclusion from the taxability is to properly account for the business related activities conducted during the period of rental, to include attendees and subjects discussed in meeting minutes, and business related activities that took place.

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