Pre Tax Life Insurance for S Corp?

[vic616283]

I'm familiar with the executive bonus plan you can implement with C-corporations where you're able to avoid being taxed at the company level and you can double bonus the employee in order to keep his income tax liability where it was prior to the bonus.

I want to know if there's a way to make life insurance contributions pretax for the employer in an S-corporation.

I have a specific example. Say you're one of those guys who has an S-corp and has all his income go through the s corp, and they write every single expense in their life off through the s corp. There's still some money left in the end and they have to pay corporate k-1 taxes, but they don't actually w-2 any salary to themselves. If I understand correctly this is a violation because you're supposed to pay SS taxes on every single thing you buy for yourself even if you can justify it as a corporate expense (correct me if I'm wrong please). However, in spite of this being a violation there's a massive amount of people who still do it. Can a guy who has a company with this structure have his company buy a life insurance policy where he is the insured, and write off this policy's premiums as an expense?

Thanks!

 

[onefastpony]

NO! The way that a C-Corp is allowed to do it is because of the double taxation. The C-Corp is its own person giving the owner (who is technically an employee) an IRC 162 executive bonus and therefore the C-Corp can deduct that expense from its payroll taxes.

Yes, the C-Corp can pay a double bonus to the employee to offset any taxes the employee will incur on the executive bonus.

As far as the S-Corp goes...No, the S-Corp can not write off the executive's bonus IF THE EXECUTIVE IS PART OWNER. If the executive is part owner you can't deduct it because an S-Corp is set us a pass through taxation system just like an LLC.

Now, if the executive receiving the bonus is not an owner, then yes, the S-Corp can deduct that bonus from its payroll taxes.

I hope this helps.

 

[vic616283]

It definitely helps! Thank you so much. So if I understand this correctly, I could add my wife to be an executive of my S- company and bonus her with an IUL or WL (or both) and write off the expense?

Thanks for the help!

 

[onefastpony]

It definitely helps! Thank you so much. So if I understand this correctly, I could add my wife to be an executive of my S- company and bonus her with an IUL or WL (or both) and write off the expense?

Thanks for the help!

Technically yes. But I wouldn't do it unless she was an actual employee of your business. Your business will have to show actual wages paid to her for your payroll taxes.

 

[DHK]

Executive Bonus Plan In Action

 

[pfg1]

It definitely helps! Thank you so much. So if I understand this correctly, I could add my wife to be an executive of my S- company and bonus her with an IUL or WL (or both) and write off the expense?

Thanks for the help!

I would tread very lightly here. Technically, you could probably make it work. But I would bet the IRS wouldn't be on your side if you ever get audited, being that she's your wife.

 

[ForestryPro]

Internal Revenue Bulletin: 2008-30

I'm not sure if this applies to your particular situation, but it may be worth checking out closely. If not structured properly, deducting the premium payments as a business expense could make the death benefit taxable income to the beneficiary.