Discussion Archives:No profit after Self Employed Health Insurance ded.

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Discussion Forum Index --> Tax Questions --> No profit after Self Employed Health Insurance ded.


HPTAX (talk|edits) said:

11 February 2007
My client is a sole proprietor filing MFJ with a Sch. C. She obtained health insurance for her and her family under her name. The premiums exceeded her business income last year and will probably continue to do so in the future. How can these premiums be deducted? Do hobby loss rules come into effect? Can the deduction be shifted in whole or in part to Sch A.?

Lhhesscpa (talk|edits) said:

11 February 2007
  • The adjustment to income is allowed only to the extent of SE income.
  • The excess is deducted on Sch. A.
  • Why do think hobby loss rules are relevant?
  • The above assumes that, if her husband is employer, the sole prop. can't be covered under subsidized health insurance of his employer.

-- Larry Hess, CPA, Albuquerque, NM - Talk to me

HPTAX (talk|edits) said:

12 February 2007
I was thinking of it in terms of losing the profit motive and using the excess deductions. Although she'll be paying SE tax, she'll never be paying income tax on her business revenue.

Lhhesscpa (talk|edits) said:

12 February 2007
The SE health insurance deduction is limited to SE income minus 1/2 of SE tax, but it doesn't show up on Sch. C and doesn't create a loss.

That said, while there is a profit motive safe harbor that a business that has a profit in 2 of 5 years will be deemed to have a profit motive, that doesn't preclude that a business that never has a profit will have had a profit motive. It the facts and circumstances that will carry the weight to make the determination. -- Larry Hess, CPA, Albuquerque, NM - Talk to me

Glmpllc (talk|edits) said:

12 February 2007
Hobby loss rules are not relevant because she is not generating a loss. Note that you are free to shift the entire health insurance premium to Sched A. I wouldn't.

HPTAX (talk|edits) said:

12 February 2007
Thanks for the replies. It looks like a win win situation for her.

DZCPA (talk|edits) said:

12 February 2007
Gimpllc, Why not deduct medical insurance? It is deductible.

Stupidemployeeowner (talk|edits) said:

12 February 2007
I had to set up my own health insurance plan to be able to deduct it on my sched C. If you do not do it this way, you have to put it on your sched "A" and then pay SE first on income, then get your "A" dedutions. My wife is also my employee, so I have my own "group", it turns out to be a little more expensive than an individual insurance plan, but this way is deduct. against income and to a loss on "C".

Deback (talk|edits) said:

February 12, 2007
SEO - A sole-proprietor's self-employment health insurance premiums are not deducted on Sch C. The amount is deducted on Form 1040, line 29, as an adjustment to income.

Glmpllc (talk|edits) said:

12 February 2007
DZCPA...I said I wouldn't shift it all to Sched A. Maximize the deduction on Page 1, then let the remainder carry to Sched A.

My point to the OP was that it can all be reported on Sched A, but that is not how I would report it for my client.

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