How To Account for Health Insurance Premiums

We are not a tax professionals so we encourage you to contact an accountant for more clarity, but here is the gist.

If you are reporting a loss from your self-employed activity, then you are not eligible to deduct your health insurance costs since this particular deduction is limited by your self-employment income. For tax years beginning after 2010, you cannot deduct any self-employed health insurance deduction you report on Form 1040, line 29, from self-employment earnings. You may be able to deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for you and your family.

How to figure the deduction.
Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. However, if any of the following apply, you must use the worksheet in chapter 6 of Publication 535.
• You have more than one source of income subject to self-employment tax.
• You file Form 2555 or Form 2555-EZ (relating to foreign earned income).
• You are using amounts paid for qualified long-term care insurance to figure the deduction.
Prepayment. You cannot deduct expenses in advance, even if you pay them in advance. This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year.
Example. In 2011, you signed a 3-year insurance con- tract. Even though you paid the premiums for 2011, 2012, and 2013 when you signed the contract, you can only deduct the premium for 2011 on your 2011 tax return. You can deduct in 2012 and 2013 the premium allocable to those years.
More information. For more information about deducting insurance, see chapter 6 in Publication 535.

You can however still claim the health insurance expenses as an itemized medical deduction on your Schedule A. If you are trying to report these numbers on your schedule A, I don't suggest entering them into GoDaddy Bookkeeping as we do not currently provide a schedule A. Please consult with your accountant as to where and how you can make this deduction and then we can help you out from there.

In regards to business insurance premiums, you can generally deduct premiums you pay for the following kinds of insurance related to your business.
1. Fire, theft, flood, or similar insurance.
2. Credit insurance that covers losses from business bad debts.
3. Group hospitalization and medical insurance for employees, including long-term care insurance.
4. Liability insurance.
5. Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients.
6. Workers’ compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault.
7. Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law.
8. Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness.
9. Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums.
10. Life insurance covering your employees if you are not directly or indirectly the beneficiary under the contract.
11. Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause.

Please refer to the following IRS publications 334 and 535 to help you find any additional information regarding this.

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