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:
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.
You need to get this S corporation health-insurance thing right. Without the W-2 treatment, the S corporation does not get a tax deduction.
With the correct W-2 treatment, the more than 2 percent 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.
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It’s common to consider making your S corporation (versus yourself) a partner in your partnership: it saves you self-employment taxes.
Does this affect your Section 199A deduction? It does.
Guaranteed payments are not qualified business income (QBI) for the Section 199A deduction. The non-QBI guaranteed payment rule applies whether the partner receives the payment as an individual or as pass-through income from an S corporation.
Keep the S corporation self-employment tax savings in mind when considering your partnership activity. Often the self-employment tax savings can make the S-corporation-as-a-partner strategy well worth it.
You have an option if you want your Section 199A deduction. We will be happy to explore that option with you. Book a Business Consultation with us.
If you own a condominium, cottage, cabin, lake or beach home, ski lodge, or similar property that you rent for an “average” rental period of seven days or less for the year, you have a property with unique tax attributes.
Seven days example. Say you have a beach home and you rent it 15 times during the year, for a total of 85 days. Your average rental is 5.7 days. That’s an average of seven days or less for the year.
The right type of beach home or vacation cottage can produce great tax results when the average rental period is seven days or less. But it’s tricky because when the average rental period is seven days or less, the property is not a rental property as defined by the tax code. Instead, the property is a commercial hotel type property that you report on Schedule C of your tax return if you provide services in connection with the rentals, or a weird in-limbo property that you report on Schedule E when you don’t provide services.
If you have a profit on the rental you likely will qualify for the 20% deduction, depending on your filing strategy.
If your seven-days-or-less beach rental property produces a $20,000 tax loss for the year, you can deduct that loss only if you can prove that you materially participate. With the seven-days-or-less-average rental, you likely have only two ways to materially participate.
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Keana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion. Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients.