NEW YORK (10/11/10)--Are you one of the 23 million self-employed Americans who pay their own health-insurance premiums? A new tax break lets you deduct the costs of the premiums you pay for yourself and your family before
computing your self-employment tax, rather than basing your deductions on your entire income (The New York Times
Sept. 29). This break can help reduce the self-employment taxes you pay—also known as payroll taxes—that cover Social Security and Medicare. The tax break, part of the Small Business Jobs and Credit Act of 2010 (H.R. 5297), is scheduled to last until the end of this year. It provides you the same tax benefit related to health insurance expenses that regular employees enjoy. The size of the tax break declines as your income increases. Depending on your income, you could save as much as 15% of what you pay for health insurance. If you are a self-employed business owner and you meet all of these requirements, you can take advantage of this new tax deduction when you prepare your 2010 taxes for the April 15, 2011 tax filing deadline:
* You file an IRS Form 1040 Schedule C tax form or Schedule E with earned income. This includes sole proprietors, single member LLCs, and sole owner S-Corporations. * You pay self-employment taxes via IRS Form 1040 Schedule SE. * You pay for individual or family health coverage in 2010.
The National Association for the Self-Employed (NASE) estimates you can save anywhere from $456 to $968. It bases these figures on the average premiums paid by single individuals and families. To get an idea of how much you can save when you file next year, add up your total 2010 health insurance costs and multiply by 15.3%. The result represents your prospective savings--unless your annual income is more than $106,800. The size of the break declines as your income increases. Ask your tax professional to assist you with calculating your tax savings. The NASE has numerous resources on its website to help you understand the benefits of the Small Business Jobs Act. For more information, read “Prep Your Home-Based Business for Success” in the Home & Family Finance Resource Center