Discussion:Disability Insurance Deduction for 100% S-Corp Shareholder?

EDIT: And to carry forward D&T's example of the employer being reimbursed or the premium being taken against another liability to the employee, the DR would be to cash and the CR would go to Disablity Insurance Expense, nulifying the expense at the corporate level. I certainly see how that eleviates the taxation of any payout to the EE. But if the ER is paying and/or expensing the premium, how can the benefits escape tax assessment?

Will

My S Corp has one on me which will be used to pay my business overhead (deductible expenses) in the event I am disabled so I don't lose my employees and have something to come back to when I am better. The S Corp deducts the premiums, the benefits would be taxable, but offset by the expenses of hiring someone temporarily to replace me.

I also have another disability policy on myself which I don't deduct. For the reasons given above.

Will: if the employer is paying the premium, it is income to the Employee whether employer chooses to deduct it or not. I can't imagine a reason for the latter except by one of us incorporated fools who thinks that by not deducting the premium at corporate level, it escapes taxation to the individual. Your entries are correct; in my case it is debit loan payable officer, credit cash when it is paid.

Is this enough to avoid taxability of a claim? Or does anyone think the premium should either be repaid by the shareholder, or added to his W-2 as income (in which case the C Corp would get a deduction for the salary aspect, but it would be taxable income to the shareholder).

I have discovered recently that prior accountant never did anything more than merely back out the premium on the corporate tax return. So company paid for it, just did not take a deduction for it for tax purposes, but evidently did for financial purposes.

Thanks for any commentary in advance . . .

I wonder . . . Say he pays the premium for a few years. Then makes a claim. Will the fact that the corporation paid the premium for several years before this make it taxable? Hmmmm. Hopefully the contract would be considered a year by year contract, if a mess like this got put under an IRS microscope . . .

Yet I see no reason that if the corporation owes the officer money on a valid loan, the disability, or for that matter, any personal item, can't be paid as a reduction of that loan, which means the officer paid for the expense with his money. Or if the corporation has retained earnings, why could it not pay the premium as a dividend to the shareholder/officer?

I would also consider a personal repayment to the S-Corp for the premium amount or possibly include the amount as a distribution (if that is even appropriate).

Just looking for your best advice if you would please oblige. Lastly, I assume that the S-Corp should NOT be including this as a deductible expense anywhere on the 1120S (or attachments) regardless of how this corp reimbursement is performed, right?

Thanks in advance.

(This was a suggestion I saw, but the source was an insurance salesman).

Thanks.