We have written about how a self-employed person who has profits can deduct health insurance premiums on the front page of form 1040.
With the high unemployment rate and retirement savings not going as far as expected, there are more self-employed business owners than most folks would guess.
The IRS Chief Counsel, the agency's top attorney, has formally advised that a self-employed individual can deduct the Medicare insurance premiums in computing Adjusted Gross Income (claim on page 1 of form 1040).
Medicare Part B insurance premiums are deducted from the Social Security Benefit check. Since a check is not written for that, it is easy to overlook that deduction when the return is prepared.
The annual statement of Social Security Benefits form 1099-SSA shows how much was paid (held out) for Medicare Part B Health Insurance Premiums.
The Chief Counsel also advised that it applies to all Medicare Parts, not just Part B. The Part D, Drug Prescription plan premium also can be claimed.
Remember, the medical insurance deduction is limited to profits from the self-employed activity.
Please note the premiums paid by the spouse of the self-employed person can also count and increase the deduction.
If you had enough profits and paid medical insurance premiums but failed to claim the premiums on page 1 of your form 1040, you can amend returns and get the refunds for the past three years. The statute of limitations applies, but usually the past three years are open to be amended.
If you did not claim the premiums you could have, and the amount of the refund is very small, instead of filing for a refund, you could just put a note with your return for that year. If the IRS were to choose to audit that year, you just say, "Wonderful, I've got a refund coming and you can do the paperwork for me."
This announcement by the IRS Chief Counsel is just another indication of how complicated the tax laws are.
Self-employed individuals do include a partner in a partnership (or a member in an LLC that files form 1065) and includes a shareholder in an S corporation that owns 2 percent or more. Some special rules apply for those folks.
Did you hear "The best carpenter makes the fewest chips."
• John Bullis is a certified public accountant, personal financial specialist and certified senior adviser serving Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs, LLC.
Article Topics: Legislature: PERSLegislature: PERS