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Old 12-05-2016, 12:46 PM
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Self employed health insurance deduction when paying 100% of different group premium?

My wife and I have a peculiar tax situation. She has steady freelance contract work with about $100K per year in income as a sole proprietor. As such, she pays self employment taxes on almost all of that income. I am part of an LLC where 100% of the income is passed through capital gains. This amount is variable but has been about $75K. The result is that I have no earned income and pay no self employment tax. The LLC that I am a member of is offering us the option to buy health insurance as part of a group plan but we would be paying 100% of the premium ourselves at about $1200 per month for a family plan. In the past, my wife has purchased a private insurance plan for the family and therefore taken the self employment health insurance premium deduction for her business. If we buy health insurance through a group plan that was created by the LLC I am a member of, would we still be able to take that deduction? Tax law states that "You can?t take the premium deduction if you were eligible for a group insurance from your or your spouse?s employer." We are in a strange situation because while I have access to a group plan it is not from an "employer" as I am not employed and 100% of the premiums are are paid by the individuals who choose to be a part of the plan.



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Old 12-06-2016, 01:16 AM
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If we buy health insurance through a group plan that was created by the LLC I am a member of, would we still be able to take that deduction? ======>>If the MMLLC pays the health insurance premium on behalf of you,the partner, the payment by the LLC is deductible on the partnership tax return on form 1065. This gives you,the partner ,the same benefit of a deduction since your share of taxable income will decrease as a result of the partnership?s deduction. The reduction is reflected on each individual member?s Sch K-1 of 1065. So, you , as partners who pay the premiums directly can deduct the expense on a personal tax return.


Tax law states that "You can?t take the premium deduction if you were eligible for a group insurance from your or your spouse?s employer." We are in a strange situation because while I have access to a group plan it is not from an "employer" as I am not employed and 100% of the premiums are are paid by the individuals who choose to be a part of the plan.==========>>Correct; as you said, UNLESS you are an employee of the MMLLC, you can claim your health ins [premium on your return as aid above. An LLC member is ineligible to deduct the cost of health insurance for any month during the year the member is eligible to participate in any other employer provided health plan. It is irrelevant whether you take advantage of the other health plan or not. This is relevant to LLC members who have employment earnings from non-LLC activity or have a working spouse that is eligible to include the LLC member in a health insurance plan.



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Old 12-06-2016, 11:17 AM
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Thanks for the thorough reply. Your understanding is close to what I assumed. The problem is that my wife's freelance income is taxed to hell as self employment income as opposed to my passive capital gains. I was hoping it could knock her income down instead. Furthermore, since I have no "earned income" we lose a lot of deductions like childcare costs. I know I'm veering off topic a little bit but I had considered having her set up a single person C Corp for her freelance work she does. I had hoped that she could then write her off the amount we pay for healthcare $14K per year and also for childcare (another $14K per year) on the corporate level as fringe benefits and drastically reduce her self employment tax. Does that seem like a sane idea? If the C corp wrote the checks to to the LLC for healthcare and to our daycare for childcare could we consider those "established" by the C corp? Most people seem to think that Single Person S corp is the way to go citing double taxation of dividends but it seems like S corps have little value for deducting major costs.



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Old 12-06-2016, 03:33 PM
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I know I'm veering off topic a little bit but I had considered having her set up a single person C Corp for her freelance work she does. I had hoped that she could then write her off the amount we pay for healthcare $14K per year and also for childcare (another $14K per year) on the corporate level as fringe benefits and drastically reduce her self employment tax. Does that seem like a sane idea? ====>> Self-employer deduct their premiums from gross income on their personal returns i mean on 1040 page 1; however, they cannot reduce their SCh C income by the premiums allocable to their personal coverage and wind up effectively paying self-employment tax on the premiums.
I guess it depends she needs to be a shareholder/ also an employee health insurance for a c corp owner tax deductible ,aslongasthe c corp owner is the only employee;so, for healthcare premium, Employees, yes, and it is not income assuming all employees are treating equally.Shareholders, no. But s/h's who are employees, yes. Owners of a C corp can receive health coverage on a tax-free basis. The corp can fully deduct its premiums. the C corp can deduct any medical expenses or health insurance it pays for the officer/employee as a health insurance deduction item. I mean C corps can deduct 100% of all long-term care insurance premiums paid as a business expense for all employees, their spouses, dependents, and retirees.Furthermore, "the C-corp can also deduct the costs of a medical reimbursement plan. If you have a lot of medical expenses that aren?t covered by insurance, the C corp can establish a plan that results in all of those expenses being tax deductible, and deduct it as a employee benefit expenses. It matters not if there is only a Single Shareholder for a C corp." " In contrast, S corp shareholders must report the benefit as income and then deduct the premiums from gross income on their personal returns?this is merely a wash. In the case of an PTE S corp, as you can see, health insurance premiums paid by an S Corp for more than 2% shareholders must be treated as wages to that owner. So, the only way an S Corp can deduct the amount paid for shareholder health insurance is to include it as part of the shareholder?s wage on W2 I mean; The disadvantage is; net income effect for the corporation is the same, but shareholder-employee?s W-2 wages will increase by the amount of the health insurance premiums paid by the S Corp.however you need to cosnsider: Corps enjoy many advantages over SMLLC/ sole proprietorships, but there are also some disadvantages ; you may contact an Enrolled Agent or a CPA doing taxes in your local area for more info in detail.




If the C corp wrote the checks to to the LLC for healthcare and to our daycare for childcare could we consider those "established" by the C corp?====> Like many tax questions, the answer is "It depends." It depends on what kind of legal entity you own.since you are a corp, things get a little trickier. If you are a C Corp, what you are doing is distributing the profits of the corpo on behalf of a shareholder, which will require that you issue a Form 1099-DIV at the end of the year for all such profit distributions. A corp is a separate legal entity. And therefore, it really should not be paying the personal expenses of the shareholders. Should someone take legal action against the corp, and this type of activity is discovered, someone could easily point to these personal payments as proof that this so-called corp is not really a corporation, and you would then lose the benefit of limited liability. This is known as "piercing the corporate veil" and you definitely don't want to go there.



Most people seem to think that Single Person S corp is the way to go citing double taxation of dividends but it seems like S corps have little value for deducting major costs.======>
There many advantages for an S corp when compared to a C corp however, hard to tell which form of entity is proper to you. you may contact an Enrolled Agent or a CPA doing taxes in your local area for more info in detail.



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