On Monday, 9/27/10, a new law was signed into effect. The Small Business Jobs and Credit Act of 2010 offers a vital tax break for more than 23 million Americans who are self-employed, which represents 78% of all small businesses in America.
Up until now, the self-employed haven't been privileged to the equivalent tax benefit relating to medical insurance costs that all other types of business entities have had. Many types of business entities, with the exception of the self employed, have been able to deduct the expense of their medical coverage as a business expense, which has saved them a decent amount of money in payroll taxes.
Now, the self-employed can take a 1-year tax deduction for medical costs in determining the self-employment tax. To qualify, you must:
- File a Schedule C (IRS's Form 1040) or a Schedule E showing income that's earned - this comprises single member Limited Liability Corporations that have a single member, S-Corporations that are solely owned, and sole proprietors.
- File a Schedule SE (IRS's Form 1040) and pay the self-employment tax.
- Pay for family or individual medical coverage this year (2010).
This deduction can be taken by the self-employed when filing their 2010 taxes next year.
On average, the self-employed can expect to save anywhere between $456.71 and $968.14 in taxes. However, if your 2010 income is higher than $106,800, the tax benefit will be lower since your income falls higher than the maximum set wage limit that is applicable to FICA, or payroll taxes. Your personal tax savings can be accurately assessed by your tax professional.
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