Commerce Clearing House (June 1999)

SELF-EMPLOYED CAN USE SPOUSE TO GET 100% HEALTH INSURANCE DEDUCTION: In a recently-released Industry Specialization Program Coordinated Issue Paper, the IRS has conceded that self-employed individuals-partnerships, limited liability companies, S corps or sole proprietorships-can hire their spouses and legitimately transform nondeductible personal expenses (e.g, health insurance) into deductible business expenses, as long as the employment arrangement is legitimate. the document confirms a planning strategy many tax advisors have used for years, but of which some questioned the aggressiveness. The paper includes a discussion of the nature and extent of employment activities that would qualify a spouse as a bona fide employee, and also cautions that certain incidents of ownership would disqualify the employee spouse's benefits from receiving favorable tax treatment. The ISP does not discuss the applicability of its rationale to other personal/business expense distinctions. (Coordinated Issue Paper UIL-162.35-02)

Source:
Peter M. Berkery Jr, J.D, LIM, CFP, is director of new
product development at CCH Inc.

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