Keith Mendonsa, a tax expert from eHealthInsurance.com, shared the following four ways to reduce your taxes with health-related expenses. Consult an accountant or certified tax professional for more information about how these four tax deductions apply to you.
- Health tax deductions: A new deduction this year and only this year let’s self-employed persons deduct the cost of their health insurance premiums from their self-employment taxes on Schedule SE.
- Got self-employment income? “You may also be able to deduct health insurance premiums you paid for yourself and your dependents as an “˜above the line’ business expense (that is, without itemizing) on your federal tax return,” Mendonsa said in an email. You cannot deduct premiums paid during any month in which you could have used employer-sponsored health insurance. Plus, the amount you deduct cannot be greater than your net self-employment income for the year. “Also, keep in mind that you may not be able to include what you paid toward your monthly premiums as an “˜above the line’ expense AND itemize it as described in the next tip. Talk to a tax professional to learn more about the different types of self-employment status and the tax implications of each in your state.”
- Itemize your health insurance and medical expenses: If you itemize your federal return, you may be able to deduct medical expenses. Check out IRS Publication 502, which lists these qualifying medical expenses: co-payments, deductibles, dental expenses, and costs for some services not covered by your insurance plan. “Keep in mind: you can only deduct the portion of your medical expenses that exceeds 7.5% of your adjusted gross income,” Mendonsa wrote.
- Get an HSA: A Health Savings Account (HSA) holds pre-tax dollars you can use to cover certain medical expenses in conjunction with your HSA-eligible health insurance plan. “If you have an HSA,” Mendonsa wrote, “be sure to deduct your contributions up to federally prescribed limits.” Make a contribution before Apr. 18, 2011 and it can count toward your 2010 federal taxes. HSA contributions for the 2010 tax year are capped at $3,050 for individuals and $6,150 for families.