Medical expenses of self-employed
If you're self-employed, an IRS ruling shows how you can get a full deduction for your family's medical expenses.
Medical expenses are an itemized deduction, but only to the extent that they exceed 7 1/2% of your adjusted gross income. Unless you've had unusual medical
expenses during the year, this limitation will eliminate or sharply reduce the deduction that you can claim.
There is a provision in the tax code that allows you, as a self-employed individual, to deduct a portion of the amount paid for health insurance for you, your spouse, and
your dependents. The deductible portion is 60% for 2000 and 2001, 70% for 2002, and 100% for 2003 and later years. Still, at least until 2003, it covers only a portion of your medical costs.
But at least one self-employed person found a way, with IRS approval, to deduct all of his family's medical expenses. He did so by hiring his wife to work in the
business as a bona fide employee. The business had an accident and health plan that covered all employees. Under the plan, the wife was reimbursed for her own
medical expenses, and those of her husband (the business owner) and their dependents. IRS ruled that the business could deduct the medical expenses that it
reimbursed, but the wife wouldn't be taxed on any of the reimbursements.
In the right situation, this strategy can be a real tax saver. If you have questions or concerns on whether this would be appropriate for you, please contact our
offices.
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