30 sec brief
Few things beat the thrill of being your own boss. You can make your own hours, pick your clients, and build a dream business. But self-employment is far from easy. Days off, taxes, and insurance chip away at your profits. These things may be a burden if your income is low. Luckily, the government offers…
Few things beat the thrill of being your own boss. You can make your own hours, pick your clients, and build a dream business. But self-employment is far from easy. Days off, taxes, and insurance chip away at your profits. These things may be a burden if your income is low. Luckily, the government offers some breaks — including a deduction for health insurance. Here’s what you need to know.
When you can deduct premiums: rules for your business
There is nothing cheap about health insurance — especially when you pay for premiums on your own. The government knows how expensive it is and offers some relief. If you are paying for health or dental insurance for yourself, spouse or kids, the premiums may be deductible. It’s not allowed in all cases, though. These are the rules for your business:
- Your business made a profit for the year. You need to have a profit after totaling your income and expenses.
- You made money as a partner of a business. This may be reported on Schedule K-1.
- You earned wages as a stockholder. This may apply if you received a W-2 and own more than 2 percent of an S corporation.
When you can deduct premiums: rules for your health insurance plan
On top of the rules for your business, there are guidelines for your insurance plan too. You need to know these restrictions before taking the deduction.
- The policy is in your name or your business’s name. This applies if you are self-employed and file Schedule C, C-EZ, or F.
- The policy is in your name or your partner’s name. If your business is a partnership, either partner can pay the premiums. But if you pay them, the business needs to reimburse you. The premiums will be income on your Schedule K-1.
- The policy is in your name or the S corporation’s name. These rules are similar to a partnership. Either you or the S corporation can pay the premiums. If you pay them, the S corporation needs to reimburse you. The premiums will be income on your Form W-2.
There is one more rule that may be easy to miss: If you were eligible to join your spouse or dependents’ health insurance plans — but chose not to — you can’t deduct your premiums. This rule applies for the entire period you were eligible for the other health insurance plan.
Where to deduct health insurance premiums
You may have noticed some major changes to Form 1040. The form may be smaller, but you need a bunch of different schedules to complete each section. This includes your self-employed health insurance premiums deduction. Here are step-by-step instructions.
Start by filling out Schedule 1. This form is for additional income and adjustments to income. Line 29 — on the second half of the form — is where your total health insurance premiums go. Once Schedule 1 is complete, the total goes on line 7 on the second page of Form 1040.
Major savings for small business owners
As a small business owner, you know the value of every dollar your company earns. Writing off premiums may reduce your tax bill — leaving more cash for other priorities. If you’re concerned by the rules, don’t hesitate to speak with a professional. Doing it right the first time is worth the added expense.
About the author
We are HSA Experts! Lively is a Health Savings Account (HSA) platform for employers and individuals. A 401(k) for healthcare.