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Year-end Tax Planning for S-Corporation Owners

Don’t lose valuable deductions or incur additional costs.

Special Reporting Required: The IRS requires special reporting of fringe benefits for S-Corporation owners who own more than 2% of the business. Certain family members of the S-Corporation owner including spouse, child, parent, and grandparent who work for the S-Corporation are also subject to the same taxability of fringe benefits.

What you need to do by December 11th: If you use a payroll service, you need to contact them and report health insurance premiums, HSA, and auto information in early December in order to have these items included on your 2019 W-2. Avoid costly amending of W-2’s and payroll returns.

Health Insurance and HSA Contributions

In order to deduct the cost of health insurance premiums paid by the business on behalf of you and your family you must do the following:

  • Compute the amount of premium paid by the business on behalf of each shareholder for the preceding 12 month period. You can use actual premiums paid for January through November and estimate the December amount if necessary.
  • Insurance Premium to track includes:
    • Medical
    • Long-Term Care
    • Medicare premiums paid

This amount must be reported in Box 1 and Box 14 of the W-2. It is not subject to social security or Medicare tax.

  • HSA - employer contributions for applicable shareholder-employees must be reported in Box 1 and Box 14 of the W-2. HSA contributions are not subject to social security or Medicare tax.

Personal use of Company Owned Autos

Compute the value of the personal use of company autos and include this in Box 1, 3, and 5 of your W-2. This fringe benefit is subject to social security and Medicare tax.

Act Now

Failure to properly report these fringe benefits may result in the loss of these business deductions or additional costs to correct W-2s and payroll reports.

Maximum Qualified Business Income (QBI)

For 2019, the deduction for Qualified Business Income (QBI) can be up to 20% of a pass-through entity owner’s QBI, subject to restrictions that can apply at higher income levels and another restriction based on the owner’s taxable income. Because of the various limitations on the QBI deduction, tax planning moves (or nonmoves) can have the side effect of increasing or decreasing your allowable QBI deduction.

The application of these rules can be complex. Please contact Shannon & Associates if you need assistance or have questions about this important year end reporting.

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Shannon & Associates is proud to be an independent member of Nexia International, a worldwide network of independent auditors, business advisors and consultants. Nexia International is the 10th largest network of accounting firms in the world, with member firms in over 100 countries. This global representation with Nexia enables us to offer our expertise in international taxes and accounting around the world and provide top quality service to our clients with foreign and domestic financial needs.