HOW TO DEDUCT MED DICARE PREM MIUMS FOR SO OLE PROPRIETTORS, PARTNERS, AND 2% % S CORP SHAREHO OLDERS By Dawn JJ. Jessee, CPA A IRS has prrovided guidaance for a sole e proprietor, partner, or 2 % shareholdeer of an S corporation to deduct Medicare prem miums as med dical care insu urance. Plus, nnow all Mediccare Parts aree now eligiblee for deduction n as self‐employed health insurance, no ot just Part B as earlier guidance indicatted. Background. To the exxtent of profitt earned from m a business vventure, a self‐employed p person (a solee proprietor, partner, orr more‐than‐2 2%‐sharehold der of an S corrporation) can deduct as aa business exp pense the amount paid durin ng the tax year for medical insurance onn himself, his spouse, depeendent, or ch hild who as off the end of th he tax year is not yet 27 ye ears old. The deduction isn n't available if the businesss owner is e eligible to parrticipate in an ny subsidized health plan m maintained by an employeer of the taxp payer (for instan nce, the busin ness is on the e side) or of th he spouse of tthe taxpayer. Guidance e. The IRS con ncludes that aall Medicare P Parts are insuurance that co onstitutes meedical care un nder these rule es. This conclu usion extendss to Medicare e premiums foor coverage o of a self‐employed individu ual's spouse, dependent, orr child who ass of the end o of the tax yearr is not yet 277 years old. Further, taxpayers mayy amend any open‐year taax returns to cclaim those M Medicare prem miums! A partner in a partnersship may pay the premium ms directly andd be reimburrsed by the paartnership, orr the premiumss may be paid d by the partn nership. In eitther case, thee premiums m must be reporrted to the paartner as guaranteed paymen nts and he mu ust report the e guaranteed payments ass gross income on his Form m 1040. Similarly, a 2% shareho older‐employyee in an S corrporation maay pay the preemiums direcctly and be reimburse ed by the S co orporation, or the premium ms may be paaid by the S co orporation. In n either case,, the premiumss must be rep ported to the 2% sharehold der‐employeee as wages on n Form W‐2, aand he must report this amount as gross income e on his Form 1040. A sole pro oprietor mustt pay the Med dicare premiu ums directly. Disclosure: In accordance w with IRS Circular 230, Regulations Governing thee Practice of Attoorneys, Certified d Public Accountants, Enrolled Age ents, Enrolled Actuaries, and Ap ppraisers before the Internal Revvenue Service, the information on this website is not intended orr written to be used as, and cann not be used as o or considered to be a "covered oopinion" or other written tax advvice, and should not be relied on n for the purpose e of (1) avoiding tax‐related pennalties under thee Internal Revenue Code or (2) o another party aany transaction oor tax‐related m matter(s) addresssed herein, for IR RS promoting, marketing or recommending to purposes. audit, tax diispute or other p ________ ____________ ___________ ____________ _______________ © 2012 by Dawn J. Jessee, CPA, PC.. All rights reserved. This iinformation o or any portion n thereof mayy not be copied d or disseminaated in any fo orm or by anyy means withoout the expreess written co onsent of Daw wn J. Jessee, CP PA, PC.
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