Self-Employed Medical Insurance Deduction – Monterey Herald
Question: I have a sole proprietorship for my consulting business and I am filing a Schedule C as a self-employed worker with my Form 1040. I offer a group medical insurance plan for my employees and my family. Can I deduct health insurance premiums from my business income?
Reply: Medical insurance premiums that you pay on behalf of your employees can be deducted as an ordinary and necessary business expense on your Form 1040, Schedule C, thereby reducing your taxable business income.
However, the premiums paid for you and your family are not deductible from your business income as reported on your Schedule C. Instead, medical insurance premiums receive special tax treatment. The premiums paid are deducted from your gross income to arrive at your adjusted gross income.
To deduct your premiums on your Form 1040, you must meet the following conditions:
You must have sufficient income from your independent business, and
· Neither you nor your spouse have health insurance through your employment with someone else.
This special treatment is especially important to you if you do not itemize your deductions (take the standard deduction) or if your total medical expenses (including medical insurance premiums) do not exceed the adjusted gross income limit of 7. , 5% for the deductibility of medical expenses. By being self-employed, this particular treatment will allow you to deduct the premiums paid.
Question: Are the rules the same if my wife works for someone else and receives a W-2 form?
Reply: If you are self-employed and you or your spouse have insurance through an employer program, the special tax treatment for self-employed people described above does not apply to you. The health insurance premiums you pay for yourself and your family are treated as if you were not self-employed. Therefore, if you itemize your deductions, you will still be able to deduct insurance premiums paid as medical expenses.
Please note that partners of partnerships, members of limited companies and shareholders of more than 2% of S corporations are generally subject to the same health insurance deduction rules as sole proprietors.
Barry Dolowich, resident of Monterey, is a Chartered Accountant and owner of a full service accounting and tax firm with offices in Monterey. He can be reached at 831-372-7200. Please direct questions to Barry at PO Box 710 Monterey, CA 93942-0710 or email: [email protected]