Rental Property Investor · Aurora, CO · Member since 2018 · 288 posts · 117 votes
Still have a W2 job but getting closer to FI in the next year or two. Big thing holding me back is getting over hurdle of health insurance for my family as well as 401k. If I make an S Corp and start hiring a couple employees is it possible to create my own company sponsored health insurance plan and 401k through house flipping business? Even if it cost a lot, it would help reduce tax liability in the company via the company expense write-off......what am I missing?? Ideas??
You have a few options when it comes to both health insurance and retirement.
Health Insurance: If the S-Corp pays health insurance for employees, the cost is deductible for the S-Corp. However, if any of the employees are greater than 2% shareholders, the health insurance premiums are included on their W-2 as compensation.
This compensation would fortunately not be subjected to SS or Medicare taxes, which is a plus- as long as you have health plan available in your company (doesn't have to be available to all employees- as long as it's available to a certain class). You can also deduct this compensation to you as self-employed health insurance on your 1040.
If you were a member of an LLC (owned your own, or had a few partners), you would be considered self-employed. In this circumstance, if you directly pay your own health insurance premiums, you can take a deduction on the 1st page of the 1040 for "self employed health insurance". However- you mentioned you would be flipping, so you would lose the benefits of an S-Corp if this is the way you end up going.
Finally- I don't know how NM is with this, but in Indiana, the health insurance options for a 1 person company are a joke. You're pretty much limited to what's on the exchange. However, the second you have at least 2 individuals who will be on the plan, you can get great options through industry groups. I'd also keep this in mind.
For health insurance- I'd recommend having a chat with your accountant who can help you compare actual numbers and benefits vs. the theoretical which we are talking about here.
Retirement Plans: This is a much smaller hurdle to jump over. Go to Vanguard, Fidelity, etc and you'll find a number of options for self-employed individuals. You can get a solo 401K if you're a solo proprietor or partner with no employees. Once you have employees, you can do small plan 401Ks as well. Many of the big companies I mentioned will help you with this- so once again, the retirement plans aren't a big hurdle.
Feel free to reach out if you have any additional questions!
Thanks so much @alan rohrer . Just to clarify I hold one LLC with my wife and I as 50/50 for the long term buy and hold rentals and I’m in the process of considering creating an S Corp w a business partner of mine for fix and flip but that has not been created yet.