Health insurance and taxes

January 24, 2007 1:36 PM

How do I "incorporate under my business" for the purpose of deducting health care costs from my income as a self-employed person?

How do you "incorporate under your business" if you are self-employed and wish to deduct your health insurance costs from your federal income tax? Last year I searched the IRS site for some information about this process, but it was not helpful.

Do I have to get a business license, develop a business model, etc.? I am a free-lance writer and temp, not an MBA.

I Google "business license" and find sites where you have to pay upwards of $175 for a license, but some of these sites look dodgy.

posted by bad grammar to law & government (7 comments total)

Self-employed persons may be able to deduct some or all of the health insurance premiums they pay. Take a look at page 24 of publication 502.

There's no requirement that you incorporate. Where did you hear that?

I'm not a tax lawyer or a CPA, and you should probably run this by one.
posted by Mr. President Dr. Steve Elvis America at 1:52 PM on January 24, 2007

Are you in the U.S.? I set up my LLC and DBA name through my secretary of state's web site. It was incredibly easy.

A business license is usually needed if you are selling goods and you need to collect sales tax. Your local municipality can provide you the tax table. But as a freelancer this might not be necessary. And a business license should definitely not cost you $175.
posted by Ostara at 1:56 PM on January 24, 2007

Oh yes, and you don't NEED to incorporate. You should be keeping track of all your mileage, business-related expenses such as software, internet access, etc. and then writing them off on your personal tax return.
posted by Ostara at 1:58 PM on January 24, 2007

If you're just going to file as a self-employed person, without incorporating, the magic words to google are "Schedule C." Like Dr. Steve, I see no reason you need to incorporate to claim (at least some of) your health insurance costs. If you want to incorporate for other reasons, bear in mind that it may make your tax return more complicated.

(I am not an accountant (but I am a tax preparer (but I'm not yours)))
posted by nebulawindphone at 2:31 PM on January 24, 2007

In addition to the swell advice above, let me urge you to find an accountant. I've been self-employed for the last few years (graphic designer, no incorporation) and found an accountant who specialized in The Arts(tm). Every year he sends me a little worksheet to fill out, spelling out what I can and cannot deduct, how much the mileage allowance is this year and whatnot. Since I do most of the work (with him checking things over), the resulting bill is less than a couple hundred (or for trade if it was a lean year). Money well spent for peace of mind.
posted by Wink Ricketts at 3:29 PM on January 24, 2007

I googled this problem, and while I agree that you don't need to incorporate, it seems that the problem is that in order to be deductible, the health insurance needs to be in the name of your business. Which, if I'm not mistaken, is automatically the same as your name unless you have some sort of legal business entity set up, so I'm not sure how that would work out in that case.

One thing you could consider, short of incorporating, is filing a "doing business as" statement. You'd have to research how to do it, but I'm pretty sure that it's simpler than incorporating and just means that you're allowed to operate your self-employment under whatever business name you register. Then you could get health insurance under that name, etc. Would that work? Maybe.
posted by lgyre at 6:28 PM on January 24, 2007

... in order to be deductible, the health insurance needs to be in the name of your business.

Nope, not at all. You can take 100% of your health insurance premiums for yourself, spouse and dependents as a deduction as long as you are not at the same time eligible for a subsidized health care plan from another employer. Your deduction also is limited to your net self-employment profit. You can't take the deduction if your business has a net loss. You simply enter the total year's premiums as an adjustment to gross income on line 29 of your Form 1040.
posted by JackFlash at 7:49 PM on January 24, 2007 [1 favorite]