 Hello and welcome to the session in which we will discuss the self-employment health insurance deduction. This deduction goes on schedule one along with so many other deductions but in this session we'll focus on this deduction and let's assume our self-employed health insurance deduction is $2,000 and let's assume that's the only adjustments we are going to have. So we're going to add up all our adjustments and this adjustments it's going to transfer to for 1040 on line 10A from schedule one and let's assume this is the only thing 2000 so that's the only adjustment and let's assume our income is 50,000 then that's going to give us our adjusted gross income of 48,000. Simply put this $2,000 of self-employment health insurance deduction simply put you paid for your health insurance and as a result you got a deduction which is good and this deduction is for AGI it means it appeared before you got to your adjusted gross income. As always I would like to remind you you have to differentiate between for and from AGI so everything that comes after this is deduction from AGI. Now there are certain rules we have to learn about this deduction so not everyone can take their self-employment health deduction and this is what we're going to be talking about today. This topic is covered in an income tax course as well as the CPA exam as well as the enrolled agent exam. If you are a CPA candidate or an enrolled agent I strongly suggest you take a look at my website farhatlectures.com no I don't replace your CPA review course I can be a useful addition to your CPA review course I can add 10 to 15 points by explaining the material differently maybe better maybe not better but at least differently than your CPA review course your risk is one month of subscription your potential gain is passing the exam and if not for anything take a look at my website to find out how well or not well your university doing on the CPA exam this is a list of all my courses please connect with me on LinkedIn if you haven't done so and take a look at my LinkedIn recommendation students that use my system to pass either their CPA exam or their enrolled agents exam like this recording share it with others connect with me on instagram and facebook let's take a look at this self-employed health insurance deduction and obviously not everyone can take this deduction there are certain rules otherwise people will take the will pay for their health insurance and they will get a tax deduction okay now let's assume you are self-employed and if you are self-employed in other words you don't work for a company because usually when you work for a company through your employer you can buy your health insurance and as a result you'll get a discount why because your employer the company that you work for put some of the bill pays pay part of the bill well payment for health insurance for self-employed individual their spouse and their dependent are not deductible on schedule c so when you have a business you have a schedule c and on schedule c it looks like an income statement and we'll talk about schedule c later you'll have your revenues minus your expenses guess what you can number back to your health insurance on that schedule however what's going to happen is and we're going to look at the rules some taxpayer can deduct for agi for adjusted gross income 100% of their self-employed health insurance premium now I really I said the example is 2000 usually the health insurance is quite expensive so let's say $10,000 right because you know I should have used a different number so simply put if you are self-employed and you bought your own health insurance policy although you cannot deduct it as a business expense you can deduct it for agi which is gives you the same effect believe it or not now well the same effect to a degree of course the amount of this deduction can be limited in to respect so simply put you cannot just pay you know $50,000 in health insurance and take the deduction you might be able to but you are subject to other restriction the first restriction you are limited to what's called net earning from self-employment so taxpayer cannot take a deduction for any amount in access of the net earning from self-employment from the trade from the business that you are that you are dealing with what is net earning from self-employment net earning from self-employment is taking your gross income which is your revenue reduced by your regular expenses so revenue minus expenses minus one half of self-employment income because you have self-employment I'm sorry net income self-employment tax and any deduction for contribution to qualify retirement plan so if you have any deduction for qualified contribution you have to take them and whatever is left that's the maximum amount you can take and we'll work an example for your self-employed health insurance deduction so if you took $50,000 let's assume you paid $50,000 worth of premium just an exaggerated number and you end up with $30,000 of net self-employment net earning from self-employment you are limited to your net earning from self-employment so that's the first limitation the other limitation is the availability of other health insurance coverage well just just to simplify things now let's assume my youtube business you know I this is what I do for a living so I'm self-employed that's not what I do but let's assume that's the case so okay that's fine I am self-employed now let's assume my spouse my spouse works which is indeed she works at Johnson & Johnson and my spouse is covered by her health insurance and also my spouse she is allowed to cover me so her policy says I will cover you which is my spouse and will cover your will cover your husband and will cover your kids and under those circumstances I am entitled to participate in a let's look at the word subsidized health health plan subsidized health plan it means the company Johnson & Johnson helps my wife foot the bill helps my wife pay part of the bill under those circumstances I'm not allowed I'm not allowed to take the deduction why I can pay my I can pay for my old for my own health insurance if I want to but I'm not allowed to take the deduction because I do have the option of participating with my wife in her Johnson & Johnson health care in her Johnson & Johnson health insurance plan okay so eligibility for alternative coverage is determined on a monthly basis what does that mean it means every month I have to ask myself do I have a subsidized subsidized health insurance plan if not then I can take the deduction if yes then I can take it and what the subsidized mean subsidized is when someone other than you pay part of the cost all the cost or part of the cost for example where I work at the college they pay the majority of the cost for health insurance it's part of being a professor now they don't pay you a lot but that's fine I have a good health insurance coverage right so totally like my plan is totally subsidized for example where it's it used to be 100 percent subsidized when I first started working health insurance was 100 percent subsidized I did not have to worry about it I had a good health insurance although the pay is not good but at least you have that piece of mind so subsidizes anytime someone helps you participate of help helps participate in paying the premium for the health insurance the premium is the cost for the health insurance to have coverage let's take a look at an example Sophia is self-employed and she has a net earning from her self-employment of 17 000 for the year she has an individual only health insurance policy through her business which she pays 145 dollars per month so Sophia wants to protect herself from a health perspective she's paying 145 dollars a month now an unrelated local business employs Miguel Miguel is her husband Miguel employer provide health insurance coverage for all employees and pay 100 dollar toward the monthly premium for each employee is this a subsidized plan yes because the employer is paying toward that plan well Miguel is allowed to cover Sophia under his policy but the couple has chosen not to because the cost would be higher than Sophia's current policy Sophia said no no I don't want to be covered because I can get the health insurance at a lower cost well in this case Sophia cannot take the deduction so she can pay the lower cost 145 but she cannot pay the deduction okay now they don't tell us how much she has to pay but it seems it's less than 145 but she cannot take the deduction I'm sorry more than 145 for herself why because regardless whether you choose to take the to take that subsidized plans or not the fact that it's available the fact that it's available you lose your deduction you lose your deduction in other words you cannot take the deduction because the plan exists now let's change the scenario a little bit let's assume Miguel did not start work until April 1st prior to that time remember Miguel worked for a private company not with his wife he was employee of his of Sophia's business and both he and Sophia were covered under a group policy cost $300 so January February and March he was employed with Sophia's business his wife and for the first three month and they were paying $300 on April 1st Sophia changed to an individual policy because he left he went to that company how much can Sophia deduct for self-employed health insurance remember now Miguel can now cover her in his new at his new company well under those circumstances Sophia can take $900 Sophia is entitled to deduct the health insurance cost for herself and her spouse for the first three month January February and March 300 times three after that time since she is eligible under Miguel's policy although it's not economically feasible the fact that she's eligible to participate in a subsidize remember the word subsidize it means somebody else is paying then she can no longer take any additional deduction and this is what we meant you have to visit this this concept every month let's take a look at another example Patrick self-employed as an as and is entitled to participate in a subsidize qualified long-term care insurance not health insurance long-term care insurance through his wife Jennifer's employer okay the general health care plan offered by Jennifer employer is not subsidized so they do have a health insurance plan at Jennifer's business but that plan is not subsidized what does that mean it means Jennifer will have to pull the pay the full amount from her own pocket now I'll give you an example my first job in a CPA firm I still remember I was very excited that I got the job because you know I get my foot into a CPA firm and the salary was decent was okay was acceptable minimally acceptable I'll have to say okay but again when you start in a CPA firm you should be lucky and grateful that you got a job and I was grateful and lucky but I did not really read the offer letter very you know in the tails and the reason is I did not really care about the benefits I thought they must be decent and what happened is this at the CPA firm what I work is this as long as you are a staff and a senior accountant and I believe yes staff and senior the health insurance is not subsidized in other words they don't pay anything for your health insurance they do offer you health insurance but they don't put the bill in other words the bill that you pay for the whole amount and I still remember the payment was around again if my memory does not fail me around $450 per check and that was kind of a little bit hefty for me but it doesn't matter I'm glad I went through it and hopefully this is a lesson for you that when you get a job in a CPA firm take it you are going to suffer at the beginning you have to prove yourself and move on to get your CPA and move on with your life and succeed but the point is the plan was not subsidized what does that mean not subsidized it means I have to pay everything for my health insurance they took they took the money from my paycheck but they did not pay any penny toward that health insurance now the partners at that firm did not have to pay a penny because they are partners the business the partnership the company will the CPA firm base for that okay so hopefully this is a good example now Patrick is entitled to participate in both health plans remember the insurance the health care it's not subsidized because what we care is about the health care we don't care about the long term care insurance he chooses to obtain the general health insurance and the qualified long term care insurance through his own business he said you know what I am not going to participate I'm going to buy my own long term care insurance and my own health insurance guess what under those circumstances he will be able to deduct the cost for the general health this is what we're talking about okay subject to income limitation but he cannot deduct the cost of the long term care insurance that's totally separate that's not health insurance so notice although Jennifer's business offered the health insurance but the plan is not subsidized okay so Patrick said look you keep it I'm gonna buy my own and because your plan is not subsidized I can deduct my health insurance on as an as a deduction on line 16 as part of my as part of my scheduled one which is it's gonna reduce my adjusted gross income which gonna reduce my taxes okay so the general rule is that if someone else is willing to pay for the insurance coverage fully or partially the premium are not deductible okay here yeah they just say they simply said oh you can buy it through us but we're not giving you any discount we're not paying with you we're not we're not helping you therefore forget about the discount we're not helping you we're not contributing to that so just make sure you know that rule but FYI for now for your own information for your own information the self-employed health insurance instruction is also available to a partner in a partnership and to a shareholder and as corporation owns more than 2% of the stock and the reason I say FYI for now because you have to understand how as corporation work how partnership work and in case of a sub chapter as corporation wages from the corporation are included in self-employed income for the purpose of the of determining the deduction limitation because remember one of the deduction limitation is how much profit you made so your wages from if you if you're receiving wages from that from that C Corp then that's considered part of your net earning don't worry about this just now that partners and a partnership and shareholders and an S corporation they are also entitled to this deduction subject to obviously limitation just FYI at the end of this recording I'd like to remind you that if you're a CPA candidate or an enrolled agent I strongly suggest you check out my website for hot lectures dot com once again I don't intend to replace your CPA review course I'm sure you paid thousands of dollars for it by all means keep it I can help you I can help you understand it better make it easier for you take a look at my website take a look at my resources study hard good luck and stay safe