SELF EMPLOYED HEALTH INSURANCE DEDUCTION
If you're self employed and File Schedule C, Form 1040, a general partner in a partnership, an active LLC member, or a more than 2% S corporation shareholder, you may be able to take an "Above-The-Line Deduction" for medical, dental, and long-term care insurance premiums for yourself, your spouse, and your dependents if one of the following applies to you:
1-You had a NET Profit on Schedule C, Form 1040.
2-You had self-employment earnings as a general partner or as an active LLC member reported to you on Schedule K-1, Form 1065.
3-You were paid taxable wages on Form W-2 as a more than 2% S corporation shareholder
There are some guidelines that appy to how the insurance plan is established to make sure the plan qualifies:
1-If you file Schedule C, Form 1040, the policy can be in either your name or in your business' name.
2-If you're a general partner or an active LLC member, the policy can be in either your name or the partnership's or LLS's name and either of you can pay the premiums. If the policy is in your name and you pay the premiums, the partnership or the LLC must reimburse you and include the premiums as guaranteed payments on your Schedule K-1, Form 1065.
3-If you're a more than 2% S corporation shareholder, the policy can be in either your name or the S corproation's name and either of you can pay the premiums. If the policy is in your name and you pay the premiums, the S corporation must reimburse you and include the premiums as taxable wage income on your tax Form W-2. The premiums are not subject to social security, medicare, or FUTA taxes. They are taxable wages and subject to federal income tax withholding.
BUSINESS NET PROFIT/INCOME LIMITATION:
You're Schedule C, Form 1040 must have a NET Profit to be eligible for this deduction. If your business earns no money or has a NET LOSS, you cannot use this deduction.
Designating Your Plan Sponsor
If you purchase the insurance in the name of your business, that business will be the plan sponsor.
If you purchase the insurance in your own name you can pick which of your businesses (if you have multiple businesses) will be the plan sponsor at the start of the tax year.
TAX TIP: Pick the business you think will earn the most money that year.
If you have multiple businesses, you cannot combine the income from all of your businesses. You may only use the NET PROFIT from a single business you designate to be the health insurance plan sponsor. But, you can have one business ourchase one policy and another business purchase another policy and possibly deduct 100% of the premiums for each policy, subject to the Business Net Profit/Income Limitation.
Any deduction not allowed may be taken as an Itemized Deduction if you itemize deductions on Schedule A, Form 1040.
Eligibility Determined Month-By-Month For Employer Sponsored Health Plans
For any month or months either you or your spouse were eligible to participate in your employer's sponsored health plan, this deduction is not allowed.
Any deduction not allowed may be taken as an Itemized Deduction if you itemize deductions on Schedule A, Form 1040.
Tax Reporting:
This deduction is NOT a business deduction. It is a special personal deduction take on the taxpayer's Form 1040.
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