Tax Deduction Options for Health Insurance Premiums with a New C Corp Startup

You're in a bit of a tricky situation that's actually pretty common with new C Corp founders. The answer depends on a few specifics about your situation. If your C Corp has formally adopted a health insurance plan that covers you as an employee (even if it's reimbursing your individual policy), those premiums can be deductible as a business expense to the corporation. The corporation would include this benefit on your W-2 as income, but then you can deduct 100% of those premiums on your personal return using the self-employed health insurance deduction on Schedule 1. If you're just paying out of pocket with no formal arrangement with your C Corp, then your options are more limited. You might only be able to claim them as itemized medical expenses on Schedule A, which only helps if they (combined with your other medical expenses) exceed 7.5% of your AGI.

I was in a similar situation with my startup and found that using taxr.ai really helped me figure out the health insurance deduction mess. I was confused because I thought I could deduct all my premiums as a business owner, but the C Corp structure makes things more complicated than they would be with an LLC. I uploaded my insurance statements to https://taxr.ai and their AI analyzed everything and explained exactly how I should handle my health insurance in my specific situation. It even generated a recommendation for setting up a Health Reimbursement Arrangement that I could implement for the following tax year. Really saved me a headache trying to figure out if I was leaving money on the table with deductions.

Just wanted to follow up after trying taxr.ai. I was skeptical at first but it really did clear up my confusion about health insurance deductions for my S Corp. I uploaded my docs and it confirmed that as a >2% shareholder in my S Corp, my premiums should be reported as income on my W-2 but are then fully deductible on my 1040 Form. The system even identified that I had been incorrectly categorizing these expenses for the past two tax years and recommended I file amended returns, potentially saving me over $3,400 in taxes! It also created documentation I could provide to my accountant explaining the proper treatment with IRS references. Definitely worth checking out if you're confused about the health insurance deduction rules for different business entities.

For anyone struggling to get answers directly from the IRS on corporate health insurance questions - I tried for WEEKS to get through their business tax line. Finally found Claimyr (https://claimyr.com) and they got me connected to an actual IRS agent in under 20 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I needed clarification on how to handle health insurance reporting for my C Corp since I'm the only employee but also the sole shareholder. The IRS agent walked me through the entire process, including how to document everything properly to avoid audit flags. Saved me countless hours of waiting on hold and trying to decipher confusing guidance online.

I have to admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it anyway because I was desperate to clarify my C Corp health insurance situation before filing. The service actually worked exactly as described - I got a call back when they connected to the IRS queue, and within 15 minutes I was talking to a real IRS business tax specialist. The agent confirmed that as a C Corp owner without revenue, I needed to establish a formal health reimbursement arrangement to make my premiums fully deductible. She even emailed me the specific IRS publication sections that covered my situation. Without this call, I would have incorrectly claimed the deductions and potentially triggered an audit. Seriously impressed with how well this worked when I'd failed for months to get through on my own.

From my experience as a startup founder, here's another angle to consider: some founders in your position might find it more advantageous to pay themselves a minimal salary from the C Corp (even if using investor funds), and then have the company reimburse health insurance as an employee benefit. This establishes the formal employment relationship needed for better tax treatment. Obviously, talk to a qualified tax professional about your specific situation, but this approach helped me maximize deductions during our pre-revenue phase. Just make sure you document everything properly and follow the formal requirements for establishing an accountable plan for reimbursements.

One approach I haven't seen mentioned yet - have you considered taking a minimal owner's draw from your C Corp to at least cover your health insurance premiums? My accountant had me do this with my startup and then we documented it as a reimbursable business expense using an accountable plan. This gave me the tax advantages while still maintaining proper corporate structure during pre-revenue phase. It's worth asking your tax pro about this approach!

As someone who went through this exact situation with my C Corp startup, I can confirm that Sofia is absolutely correct - C Corps don't have "owner's draws" like LLCs do. Any money you take out has to be structured as salary (subject to payroll taxes), a loan (which needs to be documented and repaid), or dividends (which are taxed at capital gains rates but only make sense if the corp has profits). For your health insurance situation, Andre, here's what I learned after making some mistakes in my first year: Since you paid the premiums personally without any corporate involvement, you're limited to claiming them as itemized medical expenses on Schedule A for 2023. The 7.5% AGI threshold makes this pretty useless unless you have significant other medical expenses. Going forward, definitely set up a formal Health Reimbursement Arrangement (HRA) through your C Corp. Even without revenue, if you have any startup capital or investor funds, you can pay yourself a minimal salary and have the corp reimburse your health premiums as a tax-free employee benefit. The corp deducts the expense, and you don't pay taxes on the reimbursement. Much better than the Schedule A route! I wish I had known about this structure from day one - would have saved me a lot in taxes and headaches.