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Provision Business Services LLC

A Professional Bookkeeping Firm

Located in Albuquerque, Serving all of New Mexico

505-269-3783

Many business owners run health insurance payments through their business checking account.  Depending on how your business is organized (LLC, S-Corp, etc), health insurance may or may not be a business deduction and it may depend on how you book it.

Health insurance is a deduction on you personal 1040 tax return.  If you are a single member LLC, this is how you need to claim your deduction for health insurance – on your personal taxes.  Because it is a personal deduction and not a business deduction, it should be booked as a draw.  I like to make it a separate sub-account under member draws so the CPA preparing your 1040 can easily find the amount.  The main point is that for a single member LLC, it should be booked as a draw and not an expense.

If you are legally set up as an S-corporation or are taxed as an S-Corp, you can claim health insurance as a business deduction.  You have to run health insurance through payroll in order to claim this deduction.  You will pay federal and state payroll taxes when you run it through payroll, but it is exempt from Social Security and Medicare.  Don’t set it up as a regular health insurance deduction on payroll.  It is an additional wage called S-Corp Owners Health Insurance.  You come out ahead on your taxes when you then get to deduct the amount as a business deduction on your business tax return.  I book this as a separate expense under health insurance called “S-Corp Owners Health Insurance”.  The key point is that for S-Corps, you do get a deduction on your business taxes for health insurance provided that you run it through payroll.