If you have family members working for you in your S corporation, stop and read this article now.

Think of this: You own 100 percent of your S corporation. Your 30-year-old daughter works for your S corporation. She owns no stock. Your S corporation covers her with a group health policy.

Did your S corporation claim an insurance deduction for the cost of the premiums attributable to your daughter? If yes, that’s wrong. The health insurance is not deductible by the S corporation as health insurance. The S corporation must treat the cost of your daughter’s health insurance as W-2 wages, as we will explain.

And with the incorrect setup, your family is simply out the money it paid for the health insurance. This is bad. It means a zero deduction for the S corporation and a lost health insurance deduction for your daughter.

Let’s fix this mess. Let’s get a corporate tax deduction. And let’s get a Form 1040 tax deduction for the daughter. ... Log in to view full article.