As an entrepreneur, your life is constantly filled with many twists and turns. Having to wear so many hats makes it important for you to have a business advisor/accountant that is committed to seeing you and your business grow.
Two-thirds of people who file for bankruptcy cite medical issues as a key contributor to their financial downfall. Although having health insurance doesn’t totally protect you from financial stress, having it makes one less thing you have to worry about. Having health insurance won’t just help save you from costly medical bills but it also opens you up for another tax deduction. The Self-Employed Health Insurance Tax Deduction! If you qualify for this deduction, you can deduct 100% of your health insurance premiums from your adjusted gross income every year! Whatever can not be claimed on your 1040 can be claimed on your Schedule A as an itemized deduction.
Please note: This is a deduction for self-employed individuals and their dependents. This is not a small businesses deduction.
In this article we will briefly cover your healthcare options as a freelancer, consultant, independent contractor or other self-employed worker who do not have any employees.
Where to Find Healthcare:
The Marketplace in Your State – You can use the individual Health Insurance Marketplace to enroll in flexible, high-quality health coverage that works well for people who run their own businesses. Click here to enroll in coverage for your state. If your business has even one employee (other than yourself, a spouse, family member, or owner), you may be able to use the SHOP Marketplace for small businesses to offer coverage to yourself and your employees.
In the Marketplace you can choose from several categories of coverage, from plans with low premiums that mainly protect you in worst-case scenarios to plans where you’ll pay more each month but less out-of-pocket when you get health care services.
Industry-Specific Health Insurance –There are other industry-specific health insurance plans out there—for everyone from caregivers to college alumni groups. But always read the fine print in these situations to avoid paying more for a plan that gives you less in the way of health care compared to going it alone in the Health Insurance Marketplace. Membership could give you access to discounted health insurance plans, Health Savings Accounts (HSAs) and other support.
Independent Insurance Agencies – You can find local agents who are ready to walk you through your health care options and track down the best health insurance quotes.
What to Expect during Marketplace Application:
When you fill out a Health Insurance Marketplace application, you’ll have to estimate your net self-employment income. Marketplace savings are based on your estimated net income for the year you’re getting coverage, not last year’s income.
You’ll find out if you qualify for premium tax credits and other savings on a health plan. This will be based on your income and household size.
You’ll also find out if you qualify for free or low-cost coverage through the Medicaid and CHIP programs in your state. This will depend on your income, household size, and other factors.
How to Qualify:
Show no other forms of health insurance coverage. You’ll need to prove you have your own personal health insurance coverage and aren’t still covered by an employer’s group plan or named in someone else’s policy—like your spouse’s policy. What’s more, you can’t claim the deduction if you qualify for coverage from your spouse’s group plan but choose not to take it up.
Prove your income from being self-employed. You need to have some income coming in to apply for a deduction. And if you have a few different streams of self-employed income, you can only claim the deduction against one of those streams. The one with the highest income is probably your best bet!
How to Choose the Best Plan:
Review Trustees Carefully
Look for plan features, such as: Investment options (stocks, bonds, mutual funds, and savings accounts)
In network providers
Monthly maintenance fees
Availability of online banking –Debit cards, and/or Checks
Easy-to-use tools. Online tools can help you pick plans and find doctors, and predict your costs.
24/7 service. When you have questions, you need access to claim and health care experts who can answer them.
TIP – it’s important to choose a health plan with in-network health care providers and hospitals in your area.
The right health insurance plan can help you save money on out-of-pocket costs. When you visit in-network providers, you get access to the lower rates that they’ve negotiated with your health plan. When you see an out-of-network provider, your costs are typically higher.
Forms Needed for Tax Time
Form 8889 – Health Savings Accounts Taxpayer submits this form annually with his tax return to report on all contributions and distributions made during or for the tax year.
Form 5498-SA HSA, Archer MSA, or Medicare Advantage MSA Information – Issued annually by Trustee reporting HSA contributions. Note that since contributions can be made up to April 15, Form is due to participant by May 31 (2020). Likely Delayed to July 15, 2020.
Form 1099-SA Distributions From an HSA, Archer MSA, or Medicare Advantage MSA –Report issued by the Trustee identifying all distributions made from the HSA and if the owner of the account has passed, then FMV of the account on the date of death. Form due to participant by January 31 (2020).
Want to see what other tax benefits are applicable to you? Book an online consultation here or call now at 404-449-1528! At Credence Tax Services LLC, we use strategic approaches to maximize all opportunities to save our client’s money!