Wednesday, March 3, 2010, AM | 7 Comments
If you are self-employed and are managing your business either from home or have rented space, you can take steps to minimize your tax-bite for your health insurance.
You can take advantage of IRS-implemented but Congress-designed clauses about how and under what circumstances you can take deductions for your health insurance.
You can take advantage of the generosity bestowed upon you by all three branches of the government as follows:
Deduct your health insurance premiums as a business expense
If you had self-employment income in 2009, you may be able to deduct health insurance premiums paid – from your own pocket – for yourself and your dependents as a business expense. And the good thing is you can do that even without itemizing on your federal tax return.
Make an itemized deduction for medical expenses
According to IRS Publication 502, if your qualifying medical expenses for 2009 total more than 7.5% of your Adjusted Gross Income (AGI), you may be able to deduct the excess amount if you itemize. Qualifying medical expenses may include out-of-pocket costs for co-payments, deductibles or prescription drugs. It may also include medical services and supplies not covered under your health insurance plan.
Get the most out of your Health Savings Account (HSA)
An HSA (read about it here) is a tax-advantaged savings account used in conjunction with an HSA-eligible health insurance plan. Account contributions, qualified distributions and earnings are all tax-exempt. If you have such an account, be sure to deduct your contributions up to federally prescribed limits. For the 2009 tax year, HSA contributions were limited to $3000 for individuals and $5,950 for families. If you are not using an HSA-eligible health insurance plan, see IRS Publication 969 for more information and savings calculators.
Be aware of how the COBRA subsidy may alter your taxable income
If you had COBRA insurance coverage in 2009 and received the 65% federal subsidy designed to make COBRA more affordable, your taxable income may increase depending on how much money you made last year. You should review your tax liability for the subsidy carefully with your adviser.
Deduct Qualifying Medicare Premiums
The economic tough times have forced many Americans to delay retirement. More and more seniors are among today’s accidental entrepreneurs. Premiums you pay for your Medicare coverage (or your spouse’s, if you file jointly) may be tax deductible. See IRS Publication 502 for more information. Include qualifying premiums in your itemization for medical expenses and deduct any amount over 7.5% of your adjusted gross income.
In a Nutshell
The above 5 tips are just a reminder that you sure can take steps to minimize your tax bite in the area of your health insurance if you are self-employed. Talk to your tax professional adviser to learn more about the different types of self-employment status and the tax implications of each in your state.