Employee Benefit Programs on Schedule C
If you are operating a business as a sole proprietor, you must pay income tax on any profits accruing from that business. Of course, the Internal Revenue Service does not tax you on money you must reinvest in your company, but only on your revenues net of all business expenses. If your sole proprietorship has employees, you may record the costs of providing employee benefits right along with your other business expenses on IRS Schedule C, Profit or Loss from Business.
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Applicability of Schedule C
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Schedule C only applies to business activity conducted as a sole proprietorship. You do not use Schedule C when you file taxes as a corporation, partnership or a limited liability company. You do, however, use the form to report profits and losses from certain joint ventures. If your total expenses were less than $5,000, you may be able to file Schedule C EZ, which is an abbreviated version of the Schedule C form.
Single-Member Limited Liability Companies
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Limited liability companies with only a single member or owner have an option. The member can choose to have his company file taxes as a corporation, or elect to file as a sole proprietor. If you choose to file taxes as a corporation, you do not use Schedule C, but you must file an IRS Form 8832. If you choose not to treat your LLC as a corporation for federal income tax purposes, then you file a form Schedule C, listing your employee benefit program costs on it as a business expense.
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Employee Health Premiums
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You can deduct the cost of premiums your company pays for employee health insurance, long-term care insurance, disability income insurance (both short-term and long-term), vision coverage, dental coverage, and other forms of health insurance on line 14 of Schedule C. However, premiums you pay for your own personal and family coverage for disability or lost wages, or any kind of self-insurance plan, are not typically deductible as a business expense. They do not get listed as deductions on Schedule C. You may be able to deduct these expenses on your individual Form 1040r. Use the worksheet provided in IRS Publication 535, Chapter 6 to figure your allowable deduction, if any.
Life Insurance Premiums
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Life insurance premiums are generally deductible, provided you, as the company owner, are not the beneficiary of the policy, directly or indirectly.
Fringe Benefits
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There are an almost unlimited number of fringe benefits you can provide for your employees, most of which are deductible to you and taxable to the employee as income. For example, if you grant an employee the use of a company car, you can still deduct the costs of the automobile as a lease or rental expense, rather than as an employee compensation expense. You can also offer certain benefits under a Section 125 plan, or "cafeteria plan," which is generally tax-deductible to you and tax-free to the worker.
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