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WebCPA, Tax Accountant
Category: Tax
Satisfied Customers: 111
Experience:  Licensed CPA. 10+ years experience.
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If my company took out a "Key Person" insurance policy with

Customer Question

If my company took out a "Key Person" insurance policy with the company as the beneficiary:
1. Are the premiums tax deductible for the company?
2. If a claim is made, would a payout be taxable income? How does taxability of payout work with an s-corp?
Submitted: 4 years ago.
Category: Tax
Expert:  WebCPA replied 4 years ago.

Welcome and thank you for your question. I'll do my best to provide an informative answer. Please let me know if you need any clarification.

If the company (or a 2% or greater shareholder) is the beneficiary of the policy, the premiums are not deductible. If the employee is the beneficiary, the premiums are deductible but a portion could be considered taxable benefits to the employee to be included in their W-2.

The payout would not be considered taxable income. If company was the beneficiary, the book income would be a book/tax adjustment on Schedule M-1 of the 1120S.

I hope this helps and thanks again for the question.