If you were self-employed and had a net profit for the year, you may be able to deduct amounts paid for medical and qualified long-term care insurance on behalf of yourself, your spouse, your dependents, and, your children who were under age 27 at the end of 2011. The medical or qualified long-term care insurance plan must be established under your trade or business.
This deduction is taken as an adjustment to income and cannot be more than your earned income from your trade or business. If you itemize your deductions, you may include any remaining premiums with all other medical expenses on Form 1040, Schedule A, subject to the 7.5% limit, if you do not claim 100% of your self-employed health insurance as an adjustment to income.
If you were a general partner (or a limited partner receiving guaranteed payments) or you received wages from an S corporation in which you were more than a 2% shareholder, you are considered self-employed for this purpose. If in any month you were eligible to participate in a health plan subsidized by your employer, your spouse’s employer, or, an employer of your dependent or your child under age 27 at the end of 2011, you cannot take a deduction for that month. Likewise, you cannot deduct payments for a qualified long-term care insurance contract for any month in which you were eligible to participate in a long-term care insurance plan subsidized by your employer or your spouse’s employer.
There are certain amounts you should not include in calculating your deduction. For instance, do not include amounts paid for health insurance coverage with retirement plan distributions that were tax-free because you are a retired public safety officer. Also, do not include insurance premiums attributed to a nondependent child under age 27 if your premiums increased as a result of adding this child to your policy.
Self-Employed Health Insurance Deduction Worksheet. The Self-Employed Insurance Deduction Worksheet is in the Form 1040 instructions and should be used to figure the amount you can deduct. You are not eligible to use the worksheet if any of the following applies to you:
- You had more than one source of income subject to self-employment tax
- You file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion
- You are using amount paid for qualified long-term care insurance to figure the deduction
If any of the above apply to you, use the worksheet in Publication 535, Business Expenses, to figure your deduction.
Your tax preparer can provide you with more information regarding the treatment of health insurance costs on your income tax return. StrataTax, a San Diego consulting and tax services firm, is available year-round to assist you with income tax preparation and tax planning. Call us at (858) 225-7720 to setup your free initial consultation or visit us at www.StrataTax.com for more information.
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