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Deducting Health Insurance Costs For Self Employed Persons

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In addition to the daily responsibilities of operating a business, self-employed persons must also decide how to provide for their own health insurance. The potential financial liability resulting from an accident or sickness could place a business in jeopardy. To ease that concern, self-employed persons are able to take a tax deduction for the expenses of health insurance.

The cost of your personal medical insurance is not deductible as a direct business expense of your company. The personal deduction is taken on a separate, designated line on your Form 1040. In addition to coverage for yourself, the deduction also includes the cost of health insurance for your spouse and your dependents.

A noteworthy aspect of the deduction is that you can also deduct health insurance for a child who is under age 27 at the end of the tax year. The older child does not have to be listed as a dependent on your tax return. The deduction is available to persons having ownership in one of the entity types typically used for self employment.

Sole proprietor

If you operate as a sole proprietor, your net earnings are figured on Schedule C and then reported on Form 1040. Schedule F for farmers reports earnings on Form 1040 in the same manner. A limited liability company with one owner also uses Schedule C. Regardless of entity, the deduction for health insurance is limited to the amount of net earnings.


Self-employment income from a partnership is derived from Schedule K-1 and reported on Form 1040. A limited liability company with more than one owner is also treated as a partnership and sends a Schedule K-1 to each member to report earnings.

S corporation

If you receive a Form W-2 from an S corporation and you own more than two percent of the stock of the company, you may be eligible for the health insurance deduction.

Even though your business cannot directly deduct your own health insurance, it is able to directly deduct insurance for employees. The cost of employee medical insurance is allowed as a cost of doing business and reported on the applicable entity income statement.

Some business owners may also have a second job elsewhere as an employee. The health insurance deduction only applies to months that you were not eligible for coverage in any employer health policy.

The deduction also includes the cost of long-term care insurance. The cost of long-term care insurance increases drastically with age, and the added deduction has age-based limitations. Contact your tax preparation specialist from a company like Tri Check Inc for more information about the health insurance deduction or for any other question about your taxes.