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.

Welcome Addition

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.

Daniel Stoica Accounting Professional

It’s almost summer, which means vacation time for most people. Wouldn’t it be great if everyone could take a deduction for vacation expenses? Well, if you are a small business owner, you can. It’s absolutely legal to deduct your vacation. Below are examples of how to do it (but remember to contact your tax professional to get the most complete information). 

To qualify for this deduction, you have to meet the following criteria:

1. If you are self-employed or own a small business
2. If, on your next trip, you combine business with personal.

In terms of a  small business, this includes any type of self-employment, full or part-time, home-based or bricks and mortar. The deduction refers to any type of small business: sole proprietorships, partnerships, corporations, and limited liability companies.

To deduct a U.S. trip, you are allowed to combine business with personal, but the main reason for the trip must be business related. The IRS defines a trip taken for business purposes as the number of business days must be more than the number of personal days. Also, time of travel is considered part of the business days.

If the number of business days are more than 50% of the total vacation days, then  you can take the deduction. This is what you are allowed to deduct: 100% of your transportation expenses and 100% of the expenses for your days on the road, including hotel, cab fares, rental car, business related fees, dry cleaning, laundry and meals.

Meal expenses are subject to the 50% rule. When 100% of your on-the-road expenses, including meals, are for the business days, they are deductible, and the actual amount of the meal deduction will be 50% of the meals cost. Basically, you are only allowed to deduct 50% off of your meal expenses.

Transportation expenses include air fare to and from, if you take a plane. If you drive, you are able to deduct the actual cost of gas or take the deduction that is the current IRS-approved mileage rate.

The IRS has made a list of all of the allowed deductions on their website. Below is an example of what is and isn’t deductible.

Trip Primarily for Business:  See the IRS website for full details at irs.gov. 

You can deduct all of your travel expenses if your trip was entirely business related. If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct your business-related travel expenses. These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination.

To make sure you get the maximum amount of deductions on your vacation, and so you take the correct deductions, please consult with a tax professional for help.

Daniel Stoica Accounting Professional