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Perhaps you own an S corporation and are wondering what tax deductions are available for your business? You’ve come to the right place – read on to find out.
First, the good news: Virtually every tax deduction that other business entities take is 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’ll see items such as officer compensation, employee wages and salaries, repairs, maintenance, bad debt, rent, taxes, leave, 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 return). 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 at once, such as phone, utilities, travel, meals, entertainment, Internet access, website hosting and many others.
The point here is that all typical expenses of running a business are deductible by 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, a bit of bad news: There is one type of expense that requires special treatment for S corporations: certain fringe 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 shareholders’ income, the tax benefit is eliminated.
And for some more good news: There are also several nontaxable 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 business 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.