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Monday, February 15, 2016

Finance 2 S Corporation Owner Medical Insurance

Health and accident insurance premiums paid on behalf of a greater than 2% S corporation shareholder-employee are deductible by the S corporation and reportable as taxable wages on the shareholder-employee's Form W-2, subject to federal income tax withholding.


These additional wages are not subject to Social Security, or Medicare, or Federal Unemployment taxes.


Therefore, additional wage compensation is included in the shareholder-employee's Box 1 (wages) of Form W-2, but is not included in Boxes 3 and 5 of Form W-2.


The shareholder-employee is eligible for an above-the-line deduction in arriving at Adjusted Gross Income on Form 1040 if the medical care coverage was established by the S corporation (but see IRS Notice 2008-1) and the shareholder met the other self-employed medical insurance deduction requirements.


If the shareholder-employee or the shareholder-employee's spouse was eligible to participate in any subsidized health care plan, then the shareholder-employee is not entitled to the above-the line deduction.


IRS notice 2008-1 states that if the shareholder-employee purchased the health insurance in his/her own name and paid for it with his/her own funds, the shareholder-employee would not be allowed an above-the-line deduction. If the shareholder-employee purchased the health insurance in his/her own name but the S Corporation either directly paid for the health insurance or reimbursed the shareholder-employee for the health insurance AND also included the premium payment in the shareholder-employee's W-2, the shareholder-employee would be allowed an above-the-line deduction.


The bottom line is that in order for the shareholder-employee to claim an above-the-line deduction, the health insurance premiums must ultimately be paid by the S Corporation AND must be reportable as taxable wage compensation on the shareholder's Form W-2.

This  article was written by  Donald M. Scherzi, CPA, CFP, LLC


Mike Lupo, SCORE Counselor

Tuesday, February 9, 2016

Election 2016 Small Business Issues

You should understand where the candidates stand on issues important to small business. I will not take a position or discuss where any candidate stands, but you should do the needed research on these issues among others:


Access to capital: Have you tried to get a bank loan lately? Alternative lenders offer loans at higher rates. Is this the right answer?


Taxes: There are a number of choices under discussion. Which way should we go?

Regulation: Is there enough? Do we need more or less? How much time, effort and money does it take?

Healthcare: Insurance and drug companies are raising prices. What is the future of Obamacare?

Income Divide: The rich are getting richer. Is minimum wage an answer? How about education? What should be done?


Steve Koenig, SCORE Counselor


Tuesday, February 2, 2016

Product Life Cycle

Much can be written on this subject, but I have an example that you may find interesting.


Over 21 years ago I purchased a large external canvas cover. The original cover withstood some 19 years of heavy winter weather before it began to deteriorate, allowing a black “soot” to enter. However over these 19 years the manufacturer patched a few small holes that developed. After the first few seasons the cover shrunk some and coverage needed a lot of pulling and pushing. Last year I replaced the original cover with a new one from the same manufacturer. He told me he was making the covers larger to accommodate the shrinkage issue. The new cover was significantly larger and needed additional tie-downs. Now the cover is going back for its first patch as a result of a small hole. The manufacturer said: “just bring it in and we will fix it while you wait”. Oh yes, almost all of the repairs were at no cost to me.


What would happen to your products after 21+ years? Will your customers come back for more?


Steve Koenig, SCORE Counselor



Monday, February 1, 2016

Finance 1 S Corporation Shareholder Employee Compensation


S Corporations must pay “reasonable” compensation to each shareholder-employee in return for services that the shareholder-employee provides to the corporation BEFORE non-wage distributions may be made to the shareholder-employee.


Thus, distributions and other payments by an S Corporation to a shareholder-employee MUST be treated as taxable wages to the extent the amounts are reasonable compensation for services rendered to the corporation.


Shareholder-employees who fail to pay themselves reasonable compensation and take distributions run the risk of having the IRS reclassify the distributions as wages which can result in various IRS penalties.


What determines “reasonable” compensation will depend on various factors which are specific to both the business itself and to the industry as a whole.

This  article was written by  Donald M. Scherzi, CPA, CFP, LLC


Mike Lupo, SCORE Counselor