Deducting Health Ins. Premium

[Del Q]

I've been self employed for 31 years and have purchased health insurance on my own the entire time.

In recent years this has been 100% deductible, so it hasn't hurt as much.

Starting in 2016 I'll no longer be self employed so this deduction will be going away, but I'll still be paying the premium. DW & I will both be working part time and don't plan on being eligible for an employer's plan.

Our AGA will be just a little to high to qualify for ACA subsidy.

I'm thinking of a possible way to create enough self employment income to be able to write off the cost of Health Insurance, approximately $13,000 annually. I realize I'd still have to pay Self employment on this "phantom income" which would come to about $2,000. I'd only be saving about $3,000 on State & Federal income tax in my marginal rate of 22%.

Maybe it's not worth the hassle, but it's going to hurt more to pay that premium than it used to...

 

[Senator]

Keep the business open. Fund the business expenses with investment income or whatever. Pay the premiums and other business expenses as normal.

Your business will suffer a loss, which will offset other income. It's OK, not all businesses make money every year.

 

[pb4uski]

If you are not self employed you can take your health insurance as an itemized deduction on Schedule A... the deduction is your health care costs in excess of 10% of your AGI....obviously if you don't have enough deductions to itemize you won't get any benefit.

You can get a sense of the impact by sketching out both scenarios in Taxcaster.

 

[pb4uski]

Keep the business open. Fund the business expenses with investment income or whatever. Pay the premiums and other business expenses as normal.

Your business will suffer a loss, which will offset other income. It's OK, not all businesses make money every year.

But... your deduction for health insurance will be limited if your business runs at a loss.

The deduction cannot exceed the earned income you collect from your business. For example, if your self-employment activity is a sole proprietorship that generated a tax loss for the year, you’re not allowed to claim the deduction because the business doesn’t generate any positive earned income.

https://turbotax.intuit.com/tax-too...remiums-If-You-re-Self-Employed/INF12128.html

 

[MichaelB]

If you are not self employed you can take your health insurance as an itemized deduction on Schedule A... the deduction is your health care costs in excess of 10% of your AGI....obviously if you don't have enough deductions to itemize you won't get any benefit.

That, and you can also get an HSA policy, which allows you an above the line deduction of up to $6750 plus an additional $1K each if you are over age 55.

 

[Del Q]

Thanks for the input. I'll actually be selling the business in 2016 and living off the income stream, so this won't be earned income.


I doubt I'll have enough itemized deductions to reach the standard deduction, I'll plug those numbers in when the time comes.

 

[Sunset]

Start a new business, maybe it can scratch out enough to break even and therefore be able to deduct all expenses.

Example: Cruise ship cuisine ratings book, like zgat but not for general restaurants.

 

[Senator]

But... your deduction for health insurance will be limited if your business runs at a loss.

https://turbotax.intuit.com/tax-too...remiums-If-You-re-Self-Employed/INF12128.html

Run the business as an S-corp. Self employment income is for amateurs in the eyes of the IRS.

I am pretty sure you can deduct the health insurance as a business expense, and have the business losses offset income. It may be that the insurance is treated as a wage, but there should not be any SE taxes on it.

Wages are a deductible item for the S-Corp no matter who they are paid to. If all your wages consist of is health insurance, that should be a pre-tax deduction (i.e. No FICA). Therefore, no income taxes on the personal side on that amount.

Ask an accountant.

• The shareholder’s health insurance premiums are NOT subject to FICA taxes.
• The premiums cannot be covered under a separate group plan (e.g. through a spouse’s separate employment).
• The company must either pay the premiums, or reimburse the shareholder for the premiums (even if recorded through the draw account).
• The premiums need to be included in Boxes 1 and 16, as well as being noted in Box 14 of the W-2, following the steps below titled “Recording S-Corp Shareholder Health Insurance Not Subject to FICA Taxes”.

S-Corporation Shareholder Health Insurance Instructions


Self-employed people are allowed to deduct health insurance premiums (including dental and long-term care coverage) for themselves, their spouses, and their dependents. When you’re an S corporation owner with more than 2% of the company stock, you’re treated the same as a self-employed person when it comes to deducting health insurance premiums.

http://www.nolo.com/legal-encyclopedia/deducting-health-insurance-with-s-corporation.html

 

[pb4uski]

Run the business as an S-corp. Self employment income is for amateurs in the eyes of the IRS.

I am pretty sure you can deduct the health insurance as a business expense, and have the business losses offset income. It may be that the insurance is treated as a wage, but there should not be any SE taxes on it......

I would be careful. As I read it, a greater than 2% owner of an S corp and someone who is self-employed are subject to the same limitations. Check with your tax adviser.

The health insurance deduction may not exceed the net profit from the business under which the health insurance premiums are paid, less deductions claimed for 50% of self-employment tax and Keogh, SEP, or SIMPLE retirement plan contributions.

If you are a more-then 2% S corporation shareholder and the S corporation has a health insurance plan, your health insurance deduction cannot be more than your wages from the S corporation.

Self-Employed Health Insurance Deduction for Premiums Paid