October 31, 2011

When you’re self-employed, you can’t afford to overlook your health — or your health insurance tax deduction.

The deduction is available for sole proprietors, partners, and greater-than-2%-shareholders in S corporations. You report the deduction on page one of your individual income tax return, and you can claim it whether you itemize or not (an above-the-line deduction). Amounts you’re unable to take above-the-line, such as those limited by your business income, can be included in your itemized deductions on Schedule A of your tax return.

The added benefit of using your premiums to reduce your self-employment tax expired at the end of 2010, but other rules remain intact.

That means you’ll want to have your business pay premiums by year-end. When the insurance plan is in your name, be sure to reimburse yourself — and remember to add up all eligible costs. In addition to health insurance premiums for you, your spouse, your dependents, and adult children who are age 26 or younger, you can also count premiums for long-term care policies and Medicare.

Note: If you forgot to include Medicare premiums in prior years, ask us about filing amended returns.

For S corporation shareholders, there’s one more step: You’ll need to include the premiums on your Form W-2 for 2011. They’re subject to withholding, but not FICA or Medicare tax.

Call if you have questions. We’ll be happy to help you keep your tax deductions in shape.