Duh! Health-care premiums are tax deducatble!

[walkinwood]

Hello,
Don't know what I was thinking of, but didn't realize till last week, when I used a 2005 (yes, 2005) version of Turbo-tax to estimate my post ER taxes, that Health-care insurance premiums are tax-deductible.

Here's the excerpt from irs.gov for those who, like me, are clueless about this.

Tax Topics - Topic 502 Medical and Dental Expenses
"Medical expenses include insurance premiums paid for accident and health or qualified long-term care insurance."

I was surprised to find that my federal income tax will be in the 3-5% range. I'm not eligible to withdraw from IRAs or 401Ks, so I will be tapping my taxable portfolio, and being in NJ, I have high Property taxes & Health-care premiums.

ww.

 

[AlmostDone]

Let's see if I understand this. If AGI is 30k, 7.5% of that would be 2250. If your medical expenses, including premiums is 10,000, you can deduct 7,750 (10,000- 2,250)? The link above says you can deduct things like transportation and parking fees. Really?

 

[walkinwood]

If your qualified medical expenses are greater than 7.5% of your AGI, you can deduct the entire expense. If it is less than 7.5%, you can't deduct anything.

 

[AlmostDone]

In the above example I would be able to deduct the entire 10K?

 

[JohnEyles]

In the above example I would be able to deduct the entire 10K?

I don't think so, only the part that exceeds 7.5% of AGI. Otherwise,
there would be a "step function" (a situation where maybe if you had a
FEW bucks more in medical expenses, suddenly you'd get an enormous
deduction); this is illogical and a huge incentive to cheat.

And yes, once you exceed 7.5% AGI (which is a pretty low number for
typical retiree), lotsa weird stuff (like mileage to visit the doctor) is
deductible. So there you are, using mapquest to compute mileages
to the doctor, etc.

 

[Martha]

You may deduct only the amount by which your total medical care expenses for the year exceed 7.5% of your adjusted gross income. You do this calculation on Form 1040 Schedule A in computing the amount deductible.
Tax Topics - Topic 502 Medical and Dental Expenses

 

[JohnEyles]

A related question ... when are health-insurance premiums
deductible as an adjustment to income, and thus NOT subject to
the 7.5% AGI exclusion ? There must be some self-employment
income, right ?

If a person has a job with health insurance, but has to pay some
of the premium, and consults on the side - can they deduct the
premium they paid for their employer insurance from their SE
income ?

What about my situation, a semi-RE with free health insurance as
a state retiree, but I pay extra for the deluxe policy, and I have a
little self-employment income ? Can I use the adjustment ?

Thanks !

 

[Martha]

A related question ... when are health-insurance premiums
deductible as an adjustment to income, and thus NOT subject to
the 7.5% AGI exclusion ? There must be some self-employment
income, right ?

If a person has a job with health insurance, but has to pay some
of the premium, and consults on the side - can they deduct the
premium they paid for their employer insurance from their SE
income ?

What about my situation, a semi-RE with free health insurance as
a state retiree, but I pay extra for the deluxe policy, and I have a
little self-employment income ? Can I use the adjustment ?

Thanks !

Take a look at this from the IRS on expensing health insurance costs when you have a business: Health Insurance Covering S Corporation Shareholders

 

[Rich_by_the_Bay]

Take a look at this from the IRS on expensing health insurance costs when you have a business: Health Insurance Covering S Corporation Shareholders

So, as a sole proprietor of a legitimate one-person business, one can deduct the whole premium (even family coverage) whereas an S corp owner or employee of another entity is subjec to various constraints on that. Am I reading that correctly?

If so, that will help when I semi-FIRE, do part-time locum tenens but have to personally pay for the continuation policy from my ex-employer's group. Tell me I've got it right. Please .

 

[farmerEd]

Its one of the reasons I inc'ed as a "C" corp instead of "S" when I setup my business 15 years ago..."C" corps can take the deduction above the line, and the tax filings aren't really much more complicated.

 

[walkinwood]

If your qualified medical expenses are greater than 7.5% of your AGI, you can deduct the entire expense. If it is less than 7.5%, you can't deduct anything.

Apologies for providing this incorrect information

From the same link above.
"You may deduct only the amount by which your total medical care expenses for the year exceed 7.5% of your adjusted gross income. You do this calculation on Form 1040 Schedule A in computing the amount deductible."

 

[FIRE'd@51]

Also, note that the threshold rises to 10% of AGI if you are subject to the AMT.

 

[TromboneAl]

This complicates the HSA stuff. With my HSA account, I will eventually use the HSA funds for medical expenses. Assuming that I can't deduct twice for something, those will be excluded from the 7.5% calculation. But my premiums are not a valid medical expense for my HSA account, so would I just put the total of my premiums on line 1 of Schedule A?

 

[Martha]

So, as a sole proprietor of a legitimate one-person business, one can deduct the whole premium (even family coverage) whereas an S corp owner or employee of another entity is subjec to various constraints on that. Am I reading that correctly?

If so, that will help when I semi-FIRE, do part-time locum tenens but have to personally pay for the continuation policy from my ex-employer's group. Tell me I've got it right. Please .

To show the muddiness of these issues, read this discussion: TaxAlmanac - Discussion:Self employed health insurance deduction

 

[retire@40]

Its one of the reasons I inc'ed as a "C" corp instead of "S" when I setup my business 15 years ago..."C" corps can take the deduction above the line...

Not necessarily a good reason to be a C corp.

C corps get the 100% deduction on the corporate return.

S corp employee-shareholders get 100% above the line deduction on their personal tax return, subject to income.

 

[TromboneAl]

I deducted all premiums and medical, dental, and vision expenses when I had a sole proprietorship because I had a "Medical Reimbursement Plan."

 

[farmerEd]

Not necessarily a good reason to be a C corp.

C corps get the 100% deduction on the corporate return.

S corp employee-shareholders get 100% above the line deduction on their personal tax return, subject to income.

In my case the only way I could deduct the cost was as a "C" corp...no income limits,

There were other reasons as well were it was beneficial to me.