Perhaps you own an S corporation and are wondering what tax deductions are available to your business? You’ve come to the right place – read on to find out.
First, the good news: Virtually all of the tax deductions taken by other business entities are also available to S corporations. And if you’re looking for a good list of deductible business expenses, a good place to start would be your federal income tax return. S corporation income, Form 1120S. On page one, lines 7 through 18, you will see items such as officers’ compensation, employee wages and salaries, repairs, maintenance, bad debts, rent, taxes, licenses, interest, depreciation, depletion, advertising, pension plans, and employees . benefits.
Then you get to line 19, which should be music to your tax deduction ears: other deductions (attach statement). This is where you can deduct any amount of ordinary and necessary business expenses that are common in your particular industry that are not listed on lines 7 through 18. Sure, you can think of several right away, such as telephone, utilities, travel, meals, entertainment, internet access, website hosting and many others.
The point here is that all the typical expenses of running a business are deductible for your S corporation, and the fact that you are an S corporation does not prevent you from writing off virtually all common operating expenses.
Now for a bit of bad news: There is one type of expense that requires special treatment for S corporations: certain additional benefits for shareholders who own more than 2% of the company’s stock at any time during the year. These fringe benefits include items such as health insurance premiums (including dental, vision, hospital, and accident), long-term care premiums, company contributions to a health savings account (HSA), premiums disability and group term life insurance premiums. For such benefits to be deductible by the corporation, they must be included in the shareholder’s W-2 taxable income. Generally speaking, since the corporation’s deduction is offset by inclusion in stockholders’ income, the tax benefit is eliminated.
And for some more good news: There are also several non-taxable fringe benefits. This list includes retirement plan contributions, educational assistance, dependent care assistance, retirement planning services, employee discounts, fringe de minimis benefits, and on-site sports facilities. This means that these are not included in the shareholder’s W-2 income of more than 2%. The company takes the deduction and the employee receives the benefit as tax-free income. There is nothing better than that.
The bottom line of S corporation deductions is this: there are very few typical expenses that are not deductible for your business.