for Small Business Owners
Beware - a simple error could cost you your tax deduction
As a business owner, you most likely provide health
benefits for you and your employees. Even if you do not have employees,
having a health insurance policy in your business may save you money.
As a self-employed taxpayer, you are allowed to deduct from your adjusted
gross income, 100 percent of the cost of the health insurance policy.
While this may not save in self-employment tax, the deduction will reduce
your overall tax liability. You can title the policy in your name, or in
the name of your business.
If your business is incorporated, the policy must be in the name of the
business. C corporations are allowed to deduct on their corporation return
the cost of health insurance provided to the shareholders while the cost
remains tax-free to the shareholder.
The tax treatment is slightly different for S corporations. For these
corporations, shareholder’s who own two percent or more of the stock must
include the cost of the benefit in their wages. The cost is then offset by
a deduction on the shareholder’s tax return.
The important error to avoid is not knowing how to title the insurance
policy in order to preserve your deduction. As a self-employed taxpayer,
you can title the policy in your name, or in the name of your business. As
a corporate taxpayer, you must title the policy in the name of your
business, even if you are the only owner and have no employees.