Can a small business owner write off health insurance?

As a small business owner, health insurance is a tricky question. Why so tough, you ask? Well, it has to do with “how” you report. As business owners, we generally speak of deductions in terms of ordinary, necessary, and reasonable business expenses. It seems like it would be normal to add health insurance to this list, but the truth is, it’s not the same type of expense.

First, understand that as an owner of a business, these are your personal expenses. The IRS doesn’t allow you to deduct your health insurance premiums on your Schedule C. That’s right! If you have employees and pay for their premiums, you would be allowed this business deduction as expected. It’s only for employees.

As an owner, your health insurance is not a “deduction” but an adjustment to your income and lowers your Adjusted Gross Income on the front page of your Federal 1040 Tax Return.

In years past, we would collect all the health insurance expenses and report them on the Itemized Deduction form called Schedule A, but it wasn’t fair for business owners as your income limited these deductions. Things changed, and business owners were allowed to make these adjustments, which are still the same today.

One of the many things that happen with tax laws is that they change often and sometimes quite radically. 

How you report, deduct, or adjust the expense can make a big difference to your taxable income from one year to the next. For some reason, Congress has included health insurance and medical costs in multiple tax laws changes over the last couple of decades. So keep an eye out for this one, especially if it is a good chunk of your expenses.

If you need some support on understanding or help in preparing your tax return, just reach out! We are here to help! Contact Us.