Best way to deal with COBRA?

[BillR]

So I am quite likely in the process of making some changes and starting a new company.

The new compay will be an "S" corp (probably - unless there's a reason to change...) and I will elect to take COBRA from my previous employer for a period of time (length unknown - perhaps up to 18 months).

What is the best way to deal with this taxwise? I think if you are self-employed you can take COBRA payments off of your gross income - but what is the definition of self-employed for this? Can it somehow pass as an expense to the S-Corp? Or is it better to structure this all differently?

[Evan]

Your business wouldn't be responsible for paying the COBRA coverage, this is a personal expense. If your company offered health insurance to you, it's cost would be deductible to the business. Please make sure you don't pierce the corporate veil.

Regarding the above-the-line deduction (meaning no need to itemize / no 7.5% AGI adjustment), that is usually if the insurance plan was established for your business. Seeing as it wasn't, and through another company as you're employer, it becomes a cost that you can itemize on your tax return on Schedule A.

I'm not the most knowledgeable on COBRA, so I may be missing an exception or rule possibly. I'm sure another person may chime in on this to correct me.

[BillR]

Please make sure you don't pierce the corporate veil.


Can you please explain how you mean this in this case?

[Evan]

COBRA is a personal medical expense, not an item which you can now consider a business expense. So say it'll cost you $1000 a month for this coverage, that should be coming from your personal checkbook. If that $1,000 is from a payroll check out of the S-Corp that you deposited into your personal account and wrote a check from, then fine. But the corporation certainly is not the "policyholder", so it shouldn't be taken from the business.

[BillR]

Okay, that's what I thought you meant.