As a small business owner, do you wonder how to deduct medical expenses on your tax return? This article will help you sort out that issue.
Medical expenses are deductible on Schedule A, but most don’t get to take advantage of that. You must itemize your personal deductions, and many taxpayers don’t have enough itemized deductions to make it worthwhile to even file Schedule A. Furthermore, medical expenses are deductible on Schedule A only to the extent they exceed 10% of your adjusted gross income.
For most folks, Schedule A doesn’t really help them. What’s a small business owner to do? Here are three more viable options.
1. Medical Reimbursement Plan
A medical reimbursement plan can be setup by your business for your employees. The employee submits documentation to the employer of his/her out-of-pocket medical expenses, and the employer then reimburses the employee. The end result is a deductible expense for the business and a tax-free reimbursement for the employee. This is a win-win situation for everyone.
Depending on what kind of entity you have, the rules do vary a bit, so be sure to consult with a tax professional to determine the right way to do this. And if you have non-family employees, this may not be the way to go.
But if you are the only employee of your corporation, or if you are a sole proprietor with a spousal employee, this can be the ideal way to deduct all your medical expenses not covered by insurance.
2. Health Savings Account
The HSA lets you make tax-deductible contributions into your account, which you then use to pay medical expenses. To qualify for an HSA, you must be covered by a “high deductible health insurance plan”, so be sure to consult with your tax professional or IRS Publication 969 to get the details on that.
3. Health Insurance Premium Deduction
Regardless of what type of business entity you own, taking a deduction for your health insurance premiums has gotten easier in recent years. For owners of regular “C” corporation, the business can deduct the premiums for its employees, including you. For an “S” corporation, any health insurance premium deducted by the corporation must be included in the employee/shareholder W-2 and then deducted on Form 1040. Sole proprietors and partnership owners can also deduct health insurance premiums on Form 1040.
These three strategies provide ample opportunity for virtually all small business owners to deduct both medical insurance premiums and any medical expenses not covered by insurance.