Over the last few years, medical insurance premiums – like many other things – have skyrocketed. The fortunate part for entrepreneurs is that those premiums are deductible on your taxes.
Any medical insurance premiums that you pay for mainstream insurance companies (think Anthem, Aetna, Humana, etc) are deductible per the IRS. That includes any medical, dental, and vision premiums you might pay. Just be careful with sponsored programs and cost share plans to make sure that they are eligible. Your accountant will be able to help you in determining deductibility.
The type of business entity that you operate will determine how those premiums should be paid and how they can be deducted at tax time.
Schedule C/Solopreneur/Single Member LLC
As long as you pay the insurance premium individually or from your business bank account, the premium is deductible. Your tax accountant will report the amount on your 1040 return, and you will receive a 100% deduction for all premiums paid that year.
Insurance premiums for C Corporations are deductible at the corporate level. In order to qualify, you need to make sure the premiums are being paid by the corporation, not you as an individual. The deduction is then taken on the 1120 return.
Be very careful when deducting insurance premiums under these entities. From the partnership perspective, we like to see those premiums paid by the partnership (not at the individual level). S Corporations can be paid through the corporation or on an individual level, but it needs to be reported through your payroll processing company to end up on your W-2 at the end of the year.
We have had clients not pay attention during the year when it comes to their premiums and then they file their W-2s at the end of the year incorrectly. This causes the need for amended W-2s in order to use the deduction, which cost unnecessary time and money.
Everyone’s circumstances are different, always consult with your individual tax professional to see how your medical premiums are deductible for you.
CPA On Fire is an online accounting firm for online entrepreneurs. We have extensive knowledge in working with entrepreneurs who have businesses in the ecommerce, coaching, and other online business communities. If you are looking for a highly qualified and experienced accountant, let’s connect! We will show you what we can do for your business to help you grow exponentially.