Self-Employed Health Insurance Deduction

If you’re self-employed and paying your own health insurance, you may be eligible for a large tax deduction.

The IRS offers a deduction for medical, dental or long-term care insurance premiums that self-employed people often pay for themselves, their spouse and their dependents. The insurance can also cover your child who was under age 27 at the end of 2012, even if the child was not your dependent.

You may be able to take this deduction if one of the following applies to you:

• You had a net profit from self-employment. You would report this on a Schedule C, Profit or Loss From Business, Schedule C-EZ, Net Profit From Business, or Schedule F, Profit or Loss From Farming.
• You had self-employment earnings as a partner reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc.
• You used an optional method to figure your net earnings from self-employment on Schedule SE, Self-Employment Tax.
• You were paid wages reported on Form W-2, Wage and Tax Statement, as a shareholder who owns more than two percent of the outstanding stock of an S corporation.

Those who can claim the deduction include:

• Small businesses, sole proprietorships, qualified joint ventures or farmers reporting income on Schedule C, Schedule C-EZ or Schedule F.
• Partners with self-employment earnings reported on Schedule K-1.
• Shareholders who were paid wages reported on Form W-2 and who own more than two percent of the outstanding stock of an S corporation.
• Taxpayers who used an optional method to figure net earnings from self-employment on Schedule SE.

Keep in mind that the deduction is not available if you’re eligible to participate in an employer-subsidized health plan maintained by your employer or your spouse’s employer.