Adjustments for Self-Employed Medical Insurance and Tax
Learning Objective
Be able to compute the deductions for self-employed medical insurance and self-employment tax.
A self-employed taxpayer is eligible to deduct the cost of health insurance for herself/himself and family. Go to Publication 17, Chapter 21 and read the section: Health Insurance Costs for Self-Employed Persons.
Self-employed taxpayers are required to pay Social Security and Medicare taxes (combined, these are referred to as “self-employment taxes”). The taxes are imposed on net income from the business. Self-employment income and taxes will be covered in Chapter 7, Income: Self-Employment, Rental, Partnership, and Other of this text. A deduction of one-half of the self-employment taxes is an adjustment to income on Form 1040.
Problems
Josh is self-employed and he completed Schedule C of Form 1040—Self Employment Income and Form SE, Self-Employment Tax. He computed that he owes $11,021 in self-employment taxes. How much can Josh deduct as an adjustment to income? $__________
Karen is self-employed and files a joint return with her husband, who is a full-time student at American River College. Karen purchased a family health insurance plan and paid $4,200 in premiums during the year. How much can Karen deduct as an adjustment to income? $__________
