Self-employed individuals typically have access to deductions that those with traditional jobs do not. One of those is the ability to deduct health insurance premiums for themselves and their dependents from their taxes. Understanding how to properly utilize this deduction can save you money on your taxes and make paying for health insurance more affordable.
Understand Eligibility Requirements.
To take advantage of the deduction for health insurance premiums, You must file your taxes using either a 1040 EZ or 1040 A form and report any net income from your self-employment on Schedule C. Additionally, you must be at least 31 days after the start of the tax year to meet the requirements. The deduction is only allowed in the year that these criteria are met.How to Deduct Health Insurance Costs When Self-Employed?
Calculate the Deductible Costs.
How to Deduct Health Insurance Costs When Self-Employed:
Once you have verified your eligibility for the deduction, you must then calculate the deductible costs. You can deduct only the portion of your insurance premiums that is attributable to self-employment income. This means that you cannot use pre-tax contributions from employees to calculate the deduction. Additionally, any premiums derived from a qualified Health Savings Account (HSA), such as those associated with high-deductible health plans (HDHP), also cannot be used as part of your health insurance coverage costs.
Gather Supporting Documentation.
Once you have a total premium figure amount to declare, it’s time to start gathering your supporting documentation. Make sure that any documents related to medical expenses are filed in the same order and manner as your 1040 tax form .so that information can be cross-referenced when needed. Life insurance policies, doctor’s bills, invoices for payments made for treatment – anything related to healthcare should be kept handy for filing purposes.
Confirm Qualified Family Members and Dependents are Covered.
When claiming a deduction for health insurance, it’s important to make sure that any family members or dependents are qualified. In order to be eligible for the deduction, your spouse and all other dependents must have been covered by your plan when taxes were filed. Dependents must meet both age and relationship requirements in order to be considered valid dependents and qualify for the tax deduction. Remember to document every detail regarding family and dependent coverage. Any inconsistencies could cause deductions to be denied or questioned.
Double-check Your Math When Tax Time Rolls Around.
After accounting for all eligible health insurance deductions, you’ll need to double-check the math when it comes time to file taxes. This includes confirming coverage amounts and other paperwork related to deductibles and copayments, as well as checking if any discrepancies exist between what was paid out of pocket versus that which was deducted from taxes. In addition, make sure that all receipts related to health care expenses have been properly documented and are included in your tax filing.