Health-care deductions for self-employed Q&A

Q&A from Bankrate.com

Dear Tax Talk,

Health insurance premiums are allowed as an adjustment to earnings for the self-employed. Is the amount paid over the premium for medical services and prescriptions, in the case of a $1,000 deductible and the 20 percent paid out of pocket, tax deductible for the amounts that may exceed the insurance deductible?
-- Ken

Dear Ken,
An individual with self-employment earnings, including self-employment earnings passing through from a partnership, can claim as an adjustment to adjusted-gross income, or AGI, (line 29 of Form 1040) the premiums paid on a health insurance policy maintained under that business.

The deduction arriving at AGI is limited to the earnings from the business reduced by the deduction for one-half of your self-employment tax (line 27 of Form 1040) and any pension plan contributions deducted on line 28 of Form 1040. Only the amount paid for premiums is deductible as an adjustment to AGI. Any medical expenses such as deductibles, prescriptions and patient co-pays are considered medical expenses deductible as an itemized deduction on Schedule A. In addition, any premiums that exceed the deductibility limit because of income limitations can be deducted on Schedule A.

You can also claim on line 29, subject to the income limitations, amounts paid for long-term-care insurance. You can include premiums paid on a qualified long-term-care insurance contract for you, your spouse or your dependents when figuring your deduction. But, for each person covered, you can include only the smaller of the following amounts.

1) The amount paid for that person.
2) The amount shown below. (Use the person's age at the end of the year.)

a) Age 40 or younger - $260
b) Age 41 to 50 - $490
c) Age 51 to 60 - $980
d) Age 61 to 70 - $2,600
e) Age 71 or older - $3,250

A qualified long term care insurance contract is defined as one that only provides coverage of qualified long-term-care services, such as nursing home or in-home nursing care.

 

 

 

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