Is life insurance premium tax deductible for S corp where I'm the only employee?

I handle tax work for several S corps, and I need to warn you that life insurance premiums are tricky for S corporations, especially when you're the owner-employee. Generally, when an S corporation pays life insurance premiums on behalf of an employee-shareholder, those premiums are considered taxable income to you (reported on your W-2), not a tax-deductible business expense for the company. The IRS specifically addresses this in Publication 15-B. There are some very limited exceptions, such as group-term life insurance, where the first $50,000 of coverage may receive favorable tax treatment. However, since you're the only employee, it likely won't qualify as a "group" plan. What many S corp owners do instead is take sufficient distributions or salary to personally pay for their life insurance, rather than having the corporation pay directly. The corporation can certainly pay it, but you'll end up having to record those premium payments as compensation to you.

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One option nobody's mentioned yet is a Section 162 Executive Bonus Plan arrangement for life insurance. With this approach, your S-corp can pay you an additional bonus specifically to cover your life insurance premium. The bonus is: - Deductible to the corporation as compensation expense - Taxable to you as income - You pay for the life insurance personally with after-tax dollars The net effect is that the corporation gets a deduction, though you do pay income tax on the bonus. This is often better than having non-deductible premium payments.

Has anyone looked into using a Health Reimbursement Arrangement (HRA) for an S-Corp to cover life insurance? I've heard conflicting info about this approach.

Based on my experience with S-corp taxation, I'd recommend being very careful here. The IRS is particularly strict about owner-employees trying to deduct personal benefits through their corporations. For a single-owner S-corp, life insurance premiums paid by the company will almost certainly be treated as constructive dividends or compensation to you personally. This means: 1. The premiums aren't deductible as a business expense 2. You'll likely need to report them as taxable income on your personal return 3. If treated as compensation, you'll also owe payroll taxes The key issue is that as the sole owner-employee, there's no legitimate business purpose for the corporation to pay your life insurance - it's clearly a personal benefit. The IRS has consistently ruled against this in similar cases. Your best bet is probably to just pay the premiums personally with after-tax dollars, or consider the Section 162 bonus plan that Owen mentioned if the math works out better for your tax situation. Always worth running the numbers with a qualified tax professional though!