[Anonymous]

Becker’s text covers Nondeductible Fringe Benefits by stating:

“The cost of fringe benefits for shareholders owning over 2% is NOT deductible to the S-Corp, unless the corporation includes the benefits in the employee/shareholder’s W-2 Income” – REG, Page R3-51.

So I understand that the employee can take the deduction on the 1040 as Self-Employment Health Insurance if benefit is included in the W-2.

But does that mean the S-Corp can also deduct the expense as a business deduction as well? The wording of the statement is confusing to me!

Thanks for any help… #PrayForRegTestTakers

[Anonymous]

If the S-Corp includes the fringe benefit in the owners W-2 income, it's essentially a “Wages” expense to the company. Wages are usually deductible by the company.

The fringe benefit is taxable as ‘imputed income' to the employee, so I don't think the EE would be allowed to deduct it. The company paid for it, not the EE/owner.

[makiu]

@ballslife

In regard this testable topic, see IRC 1372. https://www.law.cornell.edu/uscode/text/26/1372. I think that for the CPA test the main point is how the S Corp is going to treat the fringe benefit as a deduction and not how is going to be treated by the individual in the 1040 return. Personally, if I see a question that a states..bla bla…that a 2% shareholder, bla..bla.., I will definitely apply this code section. Also, code section 1372 invokes section 318 attribution rules for application of the “more than 2% rule”. Hope this help you but don't get hang up on this subject, just keep it simple. Good luck studying!!

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[Author]

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