Self-Employed Health Insurance Deduction Question

Technical topics regarding tax preparation.
#1
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Client retired from working as a self-employed individual 1/31/22. For purposes of calculating the self-employed health insurance deduction, can this individual include premiums paid from 2/1/22 to 12/31/22? I am aware that the income must have exceeded the total paid to claim the full amount.

I cannot find any resource that specifically excludes certain premiums from the deduction simply because the taxpayer was not self-employed for a particular month. However, strangely enough, the home office deduction does consider the number of months the individual used the office during the year for operating the business. What is the rationale behind this?
 

#2
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ssmiley10 wrote:Client retired from working as a self-employed individual 1/31/22. For purposes of calculating the self-employed health insurance deduction, can this individual include premiums paid from 2/1/22 to 12/31/22?

Yes. Sec. 162(l)(1) says this:

(1) ALLOWANCE OF DEDUCTION.—In the case of a taxpayer who is an employee within the meaning of section 401(c)(1), there shall be allowed as a deduction under this section an amount equal to the amount paid during the taxable year for insurance which constitutes medical care ...

However, if during any month, the taxpayer is eligible to participate in a subsidized health plan maintained by the employer of the taxpayer, the taxpayer's spouse or the taxpayer's dependent, then the premiums paid for those months are not allowed. See sec. 162(l)(2)(B).
 

#3
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Figured that was the case, but wasn’t 100% certain. Still seems inconsistent when compared to the home office deduction. But it is what it is.

Thanks for your help.
 

#4
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It says, “who is an employee.” What is the definition of “is?”
 

#5
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Jeff-Ohio wrote:It says, “who is an employee.” What is the definition of “is?”


Good point. So they’re not technically an employee within this code section after they have retired, so do you think that would make the premiums after 1/31/22 non-deductible as SEHI?

Seems to be yet another arbitrary interpretation of the tax code.
 

#6
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Sec. 162(l)(1) says, "In the case of a taxpayer who is an employee within the meaning of section 401(c)(1) ..." So, you need to look at sec. 401(c)(1).

Sec. 401(c)(1) says this:
(A) IN GENERAL.—The term “employee” includes, for any taxable year, an individual who is a self-employed individual for such taxable year.

(B) SELF-EMPLOYED INDIVIDUAL.—The term “self-employed individual” means, with respect to any taxable year, an individual who has earned income (as defined in paragraph (2)) for such taxable year. To the extent provided in regulations prescribed by the Secretary, such term also includes, for any taxable year—
    (i) an individual who would be a self-employed individual within the meaning of the preceding sentence but for the fact that the trade or business carried on by such individual did not have net profits for the taxable year, and
    (ii) an individual who has been a self-employed individual within the meaning of the preceding sentence for any prior taxable year.

So, I don't see the problem.
 

#7
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Agreed, after reviewing this further, the definition makes no reference to the number of months the taxpayer was actually self-employed during the year. It appears to be primarily centered around whether the business generates earned income for the year. So regardless of whether they actually generated self-employment income for one month during the year, if they have the income to absorb the deduction for the other 11 months, sounds like that’s okay.
 


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