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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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How are the premiums of life insurance on the stockholders

Customer Question

How are the premiums of life insurance on the stockholders of a c corp. and an s corp. treated on corporate taxes when the corp. is the beneficiary and when the corp. is not. thankyou
Submitted: 5 years ago.
Category: Tax
Expert:  Lev replied 5 years ago.

If the stockholder is an employee of the corporation - in general - premiums for life insurance are tax-deductible - the corporation may deduct the premiums as compensation to the shareholders.

Life insurance would be considered as fringe benefits and if paid to a more than 2% shareholder should be treated as wages up to the amounts of a reasonable wages - and as such are subject of employment taxes.

 

However, if the corporation is a direct or indirect beneficiary under the life insurance policy covering an officer, employee or other key person - premiums are not deductible if the business is a direct or indirect beneficiary under the policy. Such premiums are not deductible, because life-insurance proceeds would not be included into taxable income.

 

See for reference

http://www.irs.gov/irb/2008-30_IRB/ar13.html

 

Let me know if you need any help.

 

Customer: replied 5 years ago.
Please confirm my understanding. 1. Shareholder is a more than 2% owner and corporation is not beneficiary - then the premiums are considered compensation and deducted as such. This is whether corp. is an s corp or c corp. 2. Corporation is the beneficiary, therefore the premiums are not tax deductible as the insurance proceeds are not taxable coming in. The premiums would be booked as a book to tax difference on s corp or c corp. Thank you.
Customer: replied 5 years ago.
Hi Lev, I am hoping to hear a response today. Thank you.
Expert:  Lev replied 5 years ago.

Sorry for delay.

Yes - you have correct understanding

For corporation:

if the S-corporation is a beneficiary - premiums are not deductible for either type of corporation because life-insurance proceeds would not be included into taxable income.

if the S-corporation is not a beneficiary - premiums are considered as compensation to a shareholder - and are deductible as such.

 

For C-Corporation - the life insurance premiums for its officers/employee are not deductible for the C Corporations. These payments are M-1 adjustments and is a difference between Book Income and Taxable Income.

 

Customer: replied 5 years ago.
On the s-corp. are the premiums if s corp. beneficiary also a m-1 item as you said they were in the c corp. and also in c corp are the premiums also considered compensation and deductible as you said they were in s corp. Sorry this was not clear. Thank you for your help.
Customer: replied 5 years ago.
Hi Lev, I am being ask to pay which I will be happy to do so. Please see my last reply thanks
Customer: replied 5 years ago.
Please send this entire question to RD as I need to get the last part of this question answered. Thank you
Expert:  Lev replied 5 years ago.

For S-corporation

- if S-corporation is a beneficiary - that would be S-corporation expenses - no need to report on the schedule M-1

- if shareholder is a beneficiary - that would in general be wage expenses for S-corporation - will be reported on W-2 to beneficiaries - no need to report on the schedule M-1

 

For C-corporation

you may treat premiums as wages - but that should be employee's choice to pay premiums out of wages - in this case - employees pay premiums - not corporation.

 

Please forgive me the delay with the response.

P.S. If you want RD to address your request - I suggest to close this question and open another one requesting RD explicitly.

 

Customer: replied 5 years ago.
Sorry, earlier you said that if the corporation whether s or c is in fact the beneficiary then the premiums are not deductible and therefore a M-1 item. You further said that if the beneficiary is other than the corp. then the premiums are deductible as compensation. This is not your answer in your last response. Please clear this up. thank you
Customer: replied 5 years ago.
Please answer my last request. thank you.

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