What is the best way to deduct your health insurance costs
if you are self-employed and report your business income on a Schedule C?
If you pay your 2013 health insurance for your family, the premiums
are reported as a deduction to gross income on the front page of your personal
federal income tax return. This reduces
your taxable income, thereby reducing your income tax. But it doesn’t reduce your self employment
tax (SE tax), which is calculated on the income reported on your Schedule
C. For 2013, you’re required to pay 15.3
percent on the first $113,700 of self-employment income and 2.9 percent on
amounts above that.
Strategy: Hire your spouse to work for your business
and then cover your spouse under your employee health insurance plan. This allows you to provide insurance to
employees’ spouses—including your own!
Health insurance payments made to your employees and their spouses are
deducted on your Schedule C, and reduce both your personal income tax and your
SE tax.