So you have a small business and have a deduction for self employed health insurance that covers you and your family and has a certain amount of deductible plus your overall out of pocket costs each year. There may be cases where it makes sense to get a lower deductible plan and pay more for insurance.

Since the insurance is deductible as self employed health insurance, you get to deduct it on page 1 of your individual tax return. You get the insurance deduction but your income may not let you take the medical deduction for the money you spend on the deductible, which is a medical expense on Schedule A, itemized deductions and gets reduced by 10% of your Adjusted Gross Income (unless you are 65 or over, then it is 7.5% of AGI.) Also, you may be subject to the Alternative Minimum Tax, which increases income by many itemized deductions, including medical expenses.

So if it costs you $6000 a year for the insurance, and you earn about $200,000 from your business and other income. Let’s say your medical deductible goes from $10,000 out of pocket to $5,000, so it costs $1,000 more for your total medical but if you are in the 35% federal and state combined tax bracket, you could end up saving $2,100 in taxes plus you could save some AMT as your taxable income will be reduced (This is all hypothetical until you get your own information based on your insurance, family, etc.)

If you can get information from your insurance company about costs and numbers we can check your tax situation and see if it makes sense – it might be worth saving some taxes. Call or email me and we can check it out.

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