Dear Tax Talk,
I am self-employed and have a bike shop. I have been paying my health insurance premiums personally and not through my business. There is no deduction, however, on my taxes, as my medical expenses do not exceed 7.5% of my income. Please let me know if paying my premiums through my small business would yield a tax deduction.
As a self-employed individual, if you have "net profits" from your small business that are reported on Schedule C, Profit or Loss From Business, then you should be deducting the health insurance premiums you paid on line 29 of Form 1040 rather than on Schedule A, where there are limitations. It does not matter whether or not you pay them personally or through your business.
However, if your business is showing a loss, you will have to claim the deduction on Schedule A as an itemized deduction, where they are deductible only to the extent they exceed 10% of your adjusted gross income. However, if you or your spouse are 65 or older, the 7.5% threshold still applies through 2016.
The deduction for health insurance includes medical, dental or long-term care insurance premiums for yourself, your spouse and your dependents. You may want to take a look at your returns for prior years and consider the possibility of amending them and claiming the deduction if that is more beneficial for you.
Thanks for the great question and all the best to you.
Ask the adviser
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.
Copyright 2014, Bankrate Inc.