S Corporations do not have the more flexible rules
that a C Corporation has when it comes to paying fringe benefits
to any shareholder
who holds a 2% or more interest
in the company.
Any benefit that you provide for a 2% or more shareholder is not deductible
by the corporation as an expense, and the value of the benefit must be included in the shareholder's reported taxable earnings. By including the amount as taxable income
to the shareholder, that is the only way that an S Corp gets the benefit of deducting the expense.
Since the shareholder must include the value of the health insurance premiums in his taxable income, then the shareholder may claim a deduction
for the cost of this insurance on his personal tax return
The only benefits which an S Corp may provide to a 2% or more shareholder which can be deducted by the S Corp and excluded from the shareholder's taxable income are:
care assistance under Sec. 129.
2. Educational assistance programs under Sec. 127.
3. Qualified employee discounts, no-additional-cost services, working-condition fringe benefits, on-premises athletic facilities and de minimis fringe benefits, under Sec. 132.
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