Author Topic: How to deduct health insurance from self employment business  (Read 307 times)

StashingAway

  • 5 O'Clock Shadow
  • *
  • Posts: 20
How to deduct health insurance from self employment business
« on: February 02, 2019, 03:15:21 PM »
I'm in kind of an interesting situation:

My wife and I are both self employed. We paid full premium price for a Bronze plan on the ACA, in a somewhat expensive state.

I'm trying to figure out how to calculate and apply the PTC and am getting conflicting information. I can easily enough figure out what we paid, but don't know what our credit is. Especially since the credit is reliant on our income, and that income is determined by business expenses, which creates a circular logic as far as I can tell (I'm assuming I'm missing something here)

The end goal is to input this resultant difference between the credit and what I actually paid as an "expense" for self employment insurance.

I don't want to just use the full premium price (which was quite a bit) as a business expense, because that drops our income below poverty level, and disqualifies for the credit!

Any thoughts?

EDIT: I've done a bit more looking into this. We have really painted a strange box around ourselves here. For more backstory, we spent a year traveling. Our estimated income on the Marketplace was left unchanged, so it was above 400% FPL. This is important because we chose not to take any advanced tax credits for the monthly premium. We made around $24K AGI last year combined (not counting health insurance deduction). If we deduct the full price paid on health insurance premiums, then that puts us below FPL. Which means we would get zero Premium Tax Credits, because we left ourselves ineligible before from our choice to not take any advanced tax credits. But if we calculate our PTC first, then our adjusted AGI is again above poverty level because it was the major expense bringing us below FPL.

The net result is about an $8K difference in our return, so I want to make sure I get this right. We are using freetaxusa.com. My solution is to do a "guess and check" in their system. I input an estimated (annual premium)-(annual expected contribution), then let the calculator adjust the annual contribution on form 8962. Then used the credit given on that for a new expected contribution. I did this about five times until the numbers converged and the annual expected contribution matches on both our business expense and our form 8962


EDIT 2:My biggest concern is whether or not there is an order of operations rule here. If I must apply the annual premium as a business expense before determining PTC, then we're ineligible because we paid full price (and out $8K). If I apply both in conjunction with each other, then our business expense is significantly lower and we're again above FPL.

Edit 3: I've confirmed with a CFO friend who's experienced this before and he says that the IRS isn't concerned about order of operations; they just want to make sure I'm not double dipping. Their official instructions are to keep adjusting the "expected contribution" number until it converges. Looks like this is the way to do it!
« Last Edit: February 03, 2019, 02:11:48 PM by StashingAway »

jpdx

  • Bristles
  • ***
  • Posts: 284
Re: How to deduct health insurance from self employment business
« Reply #1 on: February 02, 2019, 05:27:16 PM »
You are correct, there is a circular calculation between the Premium Tax Credit and your AGI. This is because the portion of premiums you pay as a self-employed person are deductible, reducing your AGI and thus increasing your PTC.

And no, even if you wanted to, if you receive any PTC you cannot deduct the full premium price, only the portion you wind up paying.

If you have dental and/or vision premiums, those have no effect on your PTC but are also deductible.

Tax software will make this calculation for you.
« Last Edit: February 02, 2019, 05:33:06 PM by jpdx »

MoseyingAlong

  • 5 O'Clock Shadow
  • *
  • Posts: 76
Re: How to deduct health insurance from self employment business
« Reply #2 on: February 02, 2019, 05:51:09 PM »
just want to make sure you see that your health insurance is not entered as a business expense to determine your business profit or loss. Instead it is entered as an Adjustment on Schedule 1.
It sounds like you see that but it trips a lot of people up.

MDM

  • Walrus Stache
  • *******
  • Posts: 9109
Re: How to deduct health insurance from self employment business
« Reply #3 on: February 02, 2019, 06:15:44 PM »
I'm trying to figure out how to calculate and apply the PTC and am getting conflicting information. I can easily enough figure out what we paid, but don't know what our credit is. Especially since the credit is reliant on our income, and that income is determined by business expenses, which creates a circular logic as far as I can tell (I'm assuming I'm missing something here)
No, you aren't missing anything.

See https://cims.nyu.edu/~ferguson/Calculator%20SE%20ACA.html.

See also http://time.com/money/5237795/irs-tax-problem-obamacare-subsidy/.

I believe the developer is a member of this forum.

StashingAway

  • 5 O'Clock Shadow
  • *
  • Posts: 20
Re: How to deduct health insurance from self employment business
« Reply #4 on: February 02, 2019, 07:44:10 PM »
just want to make sure you see that your health insurance is not entered as a business expense to determine your business profit or loss. Instead it is entered as an Adjustment on Schedule 1.
It sounds like you see that but it trips a lot of people up.

Correct! And I'm glad I'm not the only one that tripped up as I had it as a business expense at first but resolved that once I read through the Schedule 1

I'm trying to figure out how to calculate and apply the PTC and am getting conflicting information. I can easily enough figure out what we paid, but don't know what our credit is. Especially since the credit is reliant on our income, and that income is determined by business expenses, which creates a circular logic as far as I can tell (I'm assuming I'm missing something here)
No, you aren't missing anything.

See https://cims.nyu.edu/~ferguson/Calculator%20SE%20ACA.html.

See also http://time.com/money/5237795/irs-tax-problem-obamacare-subsidy/.

I believe the developer is a member of this forum.

Excellent. He seemed to arrive at the same conclusion as me.. in that I'd essentially have to "guess and check" and it would invariably converge on a number that both works for the deduction and the credit.
« Last Edit: February 02, 2019, 07:46:21 PM by StashingAway »

StashingAway

  • 5 O'Clock Shadow
  • *
  • Posts: 20
Re: How to deduct health insurance from self employment business
« Reply #5 on: February 02, 2019, 08:24:40 PM »
I believe the developer is a member of this forum.

I have one question about the results. The number after the line:

"Your expected contribution is"

... is that referring to my adjusted annual premium, or the credit I get back from my annual premium full payment?