December 2, 2016

IRS Tips

Tax Changes for Small Businesses

During 2010, new laws, such as the Affordable Care Act and the Small Business Jobs Act of 2010, created or expanded deductions and credits that small businesses and self-employed individuals should consider when completing their tax returns and making business decisions in 2011.

Health Insurance Deduction Reduces Self Employment Tax

With the enactment of the Small Business Jobs Act of 2010, self-employed taxpayers who pay their own health insurance costs can now reduce their net earnings from self-employment by these costs. Previously, the self-employed health insurance deduction was allowed only for income tax purposes. For tax year 2010, self-employed taxpayers can also reduce their net earnings from self employment subject to SE taxes on Schedule SE by the amount of self-employed health insurance deduction claimed on line 29 on Form 1040.

Taxpayers can claim the self-employed health insurance deduction if the insurance plan is established under their business and if any of the following are true:

  • They were self-employed and had a net profit for the year,
  • They used one of the optional methods to figure net earnings from self-employment on Schedule SE, or
  • They received wages from an S corporation in which the taxpayer was a more-than-2-percent shareholder.

During tax year 2008, the most recent year for which data is available, the self-employed health insurance deduction was claimed on 3.6 million tax returns, reducing taxpayers’ adjusted gross incomes by $21 billion.

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