S Corp shareholder QBI deduction reduced by health premium?

[scottmcfly]

Just curious,  are you following Q&A #33 as it regards the double deduction of self-employed health ins premiums in calculating the QBI of a greater-than-2% shareholder.  The health premiums are deducted once in coming to the net income of the S corp.  As such, they are deducted at the "entity level".  Q&A#33 indicates that that are also be required to be deducted AGAIN at the shareholder level when computing the shareholder's QBI on the 1040.  This just seems wrong.  And this treatment is not specifically stated in any regulation to my knowledge.  

I am not inclined to follow Q&A#33 until there is a more authoritative promulgation.   Any thoughts?

[Lee B]

I am using Drake and it was that way last year too. I am going to assume Drake is handling it correctly.

[minkcpa]

2% shareholder insurance reduction is a duplication and the IRS is not changing per the Philadelphia liaison who did a seminar for local college.  You can skip it but it leaves a skeleton in the closet. Because you are taking the self insurance deduction, my guess is that the IRS computers will probably look for it on 8995. 

[Lee B]

If you do you a side by comparison with and without SEHI included in Box 1 W-2 Wages, you will see why the SEHID needs to reduce QBI,

otherwise as minkcpa says it ends up creating a double dipping deduction.

[scottmcfly]

Thank you Mink, while I don't agree with the logic of the IRS position I am worried about the "skeleton" issue. And the ease of which it could be computer checked.

Csblee, thanks but I don't understand the double dipping deduction comment.  Maybe I am  just dense .  But the premiums were paid by the S corp are deducted on the 1120S and therefore reduce the income pass thru and the related QBI. Why should I have to reduce QBI again for the same premiums.   On the 1040, other than the S corp income pickup, the treatment of the premiums on the 1040 are a wash: (1) inclusion in taxable wages and (2) deduction under section 162 (l) taken on Schedule 1.

So for income tax purposes the premiums end up being deducted once.  But for QBI purposes it seems the IRS wants them deducted twice.  (I think this is the "duplication" that Mink discussed).  What am I missing?

 

[Lee B]

That's the thing about opinions, everyone has one.

[G2R]

Logically it doesn't make sense to reduce the QBI income if it was already reduced at the entity level. 

Example:

S-Corp K-1 box 1: $30k, and SEHI is obviously already included in this as it's a deduction on the 1120S return.

Payroll $50k (with $10k being SEHI)

1040 would show $50k payroll + $30k Sch E,pg2, Less $10k SEHI.   (Payroll shows $10k more income from SEHI, then SEHI deduction nets it to zero because the deduction was already taken on the 1120S return,)

If you then take the $30k Sub-S profit and reduce it AGAIN with the SEHI, you're reducing the profits of the Sub-S twice.

 

Now let's take that same example above except pretend the the profit of the company is ZERO. 

S-Corp K-1 box 1: $0k, and SEHI is obviously already included in this as it's a deduction on the 1120S return.

Payroll $50k (with $10k being SEHI)

1040 would show $50k payroll + $0k Sch E,pg2, Less $10k SEHI.   (Payroll shows $10k more income from SEHI, then SEHI deduction nets it to zero because the deduction was already taken on the 1120S return,).

Does this mean the QBI is Negative $10k?  So if you have other business that are profitable you lose $10k of them for QBI purposes?  That just doesn't even make sense.

 

It totally makes sense for the Sch C filers to reduce QBI for self-employee health insurance since it's not included on the Schedule C, but not the S-corp.