Deduct Health Insurance Premium?

Dear Tax Talk,I'm confused. I heard that sole proprietors filing a Schedule C can deduct their own health insurance so they don't have to pay the 15 percent self-employment tax. The Schedule C instructions still say not to deduct my family premium on Schedule C line 15. How do I get this break, or did I hear wrong?-- Maurice

Dear Maurice,Your ears don't deceive you; however, the deduction you refer to is not as obvious to spot. The Small Business Jobs Act passed in September 2010 made a sole proprietor's health insurance costs more in line with corporate-sponsored plans -- and it was about time. Small-business employers already have a disadvantage when shopping for health insurance coverage, on top of which they were stuck paying 15 percent additional tax on their coverage. Under the SBJA provisions, a Schedule C filer gets to reduce self-employment income by the amount of deductible heath insurance premiums paid during the year. For a small business netting around $100,000 per year, this is a great advantage. The change also affects partners in partnerships that have partnership-sponsored health plans.

The Internal Revenue Service made changes to Schedule SE to implement the tax break. As in prior years, the cost of providing health insurance coverage to you and your family should be deducted on line 29 of Form 1040. On line 3 of Schedule SE Section B, be sure to subtract the line 29 amount to realize your self-employment tax savings.