As part of the Small Business Jobs Act of 2010 (full text here – see section 2042), the nation’s self-employed small business owners finally got a tax break they can use. Previously, those health insurance premiums were not considered a business deduction when calculating self-employment tax, the self-employed person’s version of Social Security and Medicare, even though they could deduct the premiums when calculating income tax. This was a significant difference from how regular employees were taxed and put the self-employed at a significant disadvantage.
Now, for the year 2010 only, self-employed business owners who pay for their own health insurance can fully deduct those health insurance premiums when calculating self-employment tax. For every $100 of premiums, this represents a tax savings of $15. It’s not a windfall, but we’ll take whatever we can get!
As with everything deduction-related, save that paperwork! Be able to prove the amount paid for health insurance premiums with a bill or policy from the insurance provider and proof of payment on your end, such as canceled checks. And keep saving those receipts in 2011, as I’m keeping my fingers crossed that the deduction might be renewed for next year, as well!
Deb Howard Greenleaf, EA, CEO and Principal, of Greenleaf Accounting Services provides virtual accounting and bookkeeping services and specializes in financial management to consultants, coaches, solo professionals, and other small business owners across the US. Deb is an Enrolled Agent (EA)—an IRS-licensed tax professional—and specializes in small businesses and entrepreneurs filing Schedule C or as an LLC. As an Advanced Certified QuickBooks ProAdvisor, Deb spends her day in QuickBooks Online and specializes in providing QBO support.
Thanks for sharing valuable information for us Small Business Owners!
Thanks for sharing valuable information for us Small Business Owners!