Don't Miss Out On The Self-Employed Health Insurance Deduction
If you are self-employed, then you know that self-employment taxes can be burdensome. You may already know that you can deduct specific items related to your business, but you may not know about one other significant deduction for which you might be eligible. If you've been filing a schedule C and SE, you've made a profit with your business and pay your own health insurance, then you may be eligible to take the self-employed health insurance deduction.
What is the self-employed health insurance deduction?
Since 2003, this deduction allows anyone who is self-employed to deduct 100% of any medical insurance premiums. This includes medical, dental and long-term health insurance. The deduction offsets your income and reduces the amount of taxes owed and can result in a higher refund or lower tax payment.
Who is eligible to take this deduction?
According to IRS publication 535, anyone engaged in a business, either as a sole proprietor, partner or a 2% shareholder in an S corporation and has made a profit can benefit from this deduction. The insurance must be in your name, the name of the partnership or the name of the S corporation. If you are eligible, you can also use this deduction to deduct insurance paid for your spouse and dependents.
What might disqualify someone from this deduction?
If you or your spouse have access to an employer-sponsored plan (one where an employer pays all or part of the insurance costs and premiums), then you may not be eligible for those months that you had access to these plans. COBRA plans may also make you ineligible for this deduction because the insurance is likely established in your former employer's name and not in the name of your business.
How does getting insurance through the ACA affect this deduction?
If you get insurance through the ACA (also known as "Obamacare"), then you will only be eligible for the portion you actually pay out of your own pocket. Additional calculations may also be needed due to the fact that this deduction lowers your income level and can affect whether or not you get a refund for overpaying your premiums. This is known as a "circular relationship" and requires special calculations to balance things out.
Because any type of deduction can be complicated, it's best to talk to a tax professional, especially if you are not sure if you are qualified. If you think you might be eligible, be sure to mention it to your accountant and show him or her any relevant documents that might prove that your eligibility. This deduction can be significant, so it's important to check it out before filing your taxes. Contact a business that offers tax preparation services, such as Herman & Cormany, for more information.