If your freelance business is successful, you may consider incorporating in the future. The IRS permits new businesses to deduct expenditures associated with incorporation, including state registration fees and legal costs.
One of your biggest costs may be for health insurance coverage.
Self-employment health insurance deduction
Most full-time employees receive their health insurance through their employer. However, many self-employed professionals must pay for their own healthcare out of pocket, and those monthly premiums can add up to a hefty chunk of change every month.
Self-employed individuals who meet certain criteria may be entitled to a special tax deduction that allows them to deduct the cost of health insurance premiums. The deduction includes coverage for dental expenses, vision, long-term care and short-term care. You can deduct the cost of coverage for yourself, your spouse and any dependent family members.
If you meet the following requirements, you can deduct the cost of your health insurance plan:
- Your business is generating a profit. If your business claims a loss for the tax year, you can’t claim the health insurance deduction.
- You were not eligible to enroll in an employer’s health plan. This also includes your spouse’s plan. If you were eligible to enroll in a health plan and chose not to, you cannot claim the health insurance deduction.
- You are only attempting to deduct premiums paid for the months when you were not eligible for an employer’s health plan.
Note that health insurance costs are not posted with other expenses on Schedule C, Business Profit and Loss.
Instead, self-employed workers who use Schedule C deduct health insurance costs using Schedule 1 of Form 1040. Schedule 1 computes adjustments to income on your personal tax return.
Once you understand the self-employed business deductions, you can gather information to complete your tax return.
How do those deductions translate into paperwork?
Some of the self-employment tax deductions above may not apply to your profession, but you might be surprised by the number that do.
When you’re ready to file, you’ll list the majority of your deductions on Schedule C (Form 1040).
Your individual tax return is due April 15th. If April 15th falls on a weekend or holiday, the due date is the following Monday.
Take a look at Schedule C and the instructions, so you have an idea of how the form is organized. A quick review will help you understand your allowed business deductions.