Posted by : Daniel Stoica in (Articles, Tax Deductions, Tax Return, Tax Topic) On: August 9th, 2011
Tagged Under : 1040, accounting professional, Business Expenses Publication 535, Daniel Stoica, deduct, healthcare, IRS, LLC, Medicare Part B, Medicare Part C, Medicare Part D, medigap, partnership, premiums, S-type corporation, Self-employed, seniors, sole-proprietorship, standard tax form, supplemental insurance, tax professional, tax season, taxpayers
For the first time, the IRS allowed self-employed seniors to deduct Medicare Part B premiums for the 2010 tax season. Before the 2010 tax year, the IRS didn’t allow premiums to be deducted. This new rule was set in early 2011, but it was not widely publicized. It was just included on the 1040 for tax season. The new rule contradicts the “Business Expenses Publication 535″, which states that deducting Medicare Part B premium payments is not allowed. But a statement released by the IRS requested that taxpayers ignore the statement on Publication 535 and go ahead and the deductions on the new 1040. Self-employment health insurance includes all of the insurance premiums paid for owners of sole-proprietorships, partnerships, S-type corporations, and limited liability companies (LLC).
How To Take The Deduction
The deduction is located on Line 29 of the 1040, “Standard Tax Form”. The deduction is on the first page of the tax form, so you don’t need to claim it as an itemized deduction.
Small-business owners feel this inclusion on the 1040 is a huge savings, because Medicare for self-employed seniors costs about $4,500.00. If your spouse and family are included, the costs could become very expensive. Consequently, many individuals who qualify see this as a good deal.
The Healthcare is Deducted Twice
You can deduct this premium cost twice. Because healthcare costs are an allowable expense for businesses, it means you can deduct this expense in your taxable business income. The expense is removed before including the income on your tax return. As an added tax benefit, the same premium cost is deducted again on Line 29 of the Standard Tax Form. The IRS has actually allowed the deduction twice.
What about Medicare Part C and Part D?
Since there was no announcement about the inclusion of Part B premium deductions, the IRS is still not giving the deductions for Part C or Part D premiums. Part C is for self-employment premiums for Medicare Advantage HMO insurance and Part D is prescription drug coverage for the self-employed. There has been no mention of the Medicare Supplemental Insurance products, or Medigap, either. As the IRS releases more information about this inclusion in the 1040, there will be clear rules about how to handle all of the self-employment healthcare plans.
On the IRS website, they have given a clear description of the Part B deduction, which is noted below.
Medicare Part B:
Medicare Part B is a supplemental medical insurance. Premiums you pay for Medicare Part B are a medical expense. If you applied for it at age 65 or after you became disabled, you can include in medical expenses the monthly premiums you paid. If you were over age 65 or disabled when you first enrolled, check the information you received from the Social Security Administration to find out your premium.
Please contact a tax professional if you would like more information about this deduction.