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PDtax
PDtax, CPA firm owner
Category: Tax
Satisfied Customers: 1936
Experience:  32 years tax experience, including four years at a Big 4 firm.
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I own a small business in California and my wife and I are

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I own a small business in California and my wife and I are a group of 2 and have group health insurance with Kaiser Permanente. I was able to take a pretty substantial self employed health insurance deduction in 2012 which lowered our AGI significantly. I am wondering if I will lose that deduction and if I should add that amount back to my AGI to get a better feel for what my eligibility will be as I shop for individual ACA health insurance. It looks as if I will be able to save roughly $1000/month if I switch to an ACA individual plan.

Will I lose the self employed health insurance deduction completely or will I still be able to claim my health care costs in future years as a straight deduction?
Submitted: 11 months ago.
Category: Tax
Expert:  PDtax replied 11 months ago.

PDtax :

Welcome to the site. I'm PDtax, and will be helping you today.

PDtax :

I just got called away. I'll be back in an hour and a half.

Customer:

OK

Expert:  PDtax replied 11 months ago.
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information.

What happens now?

If you haven’t already done so, please rate your answer above. Or, you can reply to me using the box below.
Customer: replied 11 months ago.

??

Expert:  PDtax replied 11 months ago.
Hi Colin,

I'm working on the response in Q & A format.
Customer: replied 11 months ago.

OK. I'm here now for 10 minutes or so then will be gone for about 20 minutes

Expert:  PDtax replied 11 months ago.
Hi Colin,

You are scheduled to lose that deduction for 2013. You may want to investigate incorporating your business to create an entity that can deduct the costs for 2013.

If you do not change the entity form of your business, you will base the Federal subsidy, if eligible, on your 2013 income. Using your 2012 income and adding back the self employed health insurance deduction is a good start for estimating your 2013 income.

The deduction is not currently available, although legislation was just introduced to renew the deduction for 2013. Otherwise, you will be limited to an itemized deduction that must exceed 10% of adjusted gross income to get a tax deduction.

Thanks for asking at Just Answer. I'm PDtax.
Customer: replied 11 months ago.

Is the loss of the deduction related to ACA or for some other reason?

Expert:  PDtax replied 11 months ago.
The deduction expired after 2012, and was allowed to under ACA, which was signed into law in 2010. The non-renewal was intended to level the playing field, as Federal tax credits for health insurance based on income are now in play for both small businesses and individuals.
Customer: replied 11 months ago.
Relist: Incomplete answer.
I'm having trouble independently verifying what he told me and I emailed him through the site for clarification and never got a response back.
Expert:  PDtax replied 11 months ago.
Hi again. PDtax. I never got your email.

What questions do you have?
Customer: replied 11 months ago.

I did some independent checking on the IRS website and don't see where the deduction is going away for 2013. Can you give me a citation?


 


I do see where the deduction is only valid for expenses that exceed 10% vs 7.5% before.


 


Here are some numbers for us for 2012:


 


AGI - $58788


Health expense - $18503


 


Expected health expense with ACA ~$12000.


 


Assuming the deduction hasn't gone away completely like you said earlier, since we will still exceed 10%, would we still be able to deduct the full amount or is it the amount above 10%?


 


Thanks

Expert:  PDtax replied 11 months ago.
IRC 162 (l) is the code section governing this deduction.

I knew I had seen a bill in congress asking for this deduction to be made permanent. http://www.nase.org/Nase_News/2013/04/01/legislation-introduced-to-permanently-deduct-self-employed-health-insurance-costs is the link I found to the bill.

From the bill text:

SEC. 9. ALLOWANCE OF DEDUCTION FOR HEALTH INSURANCE IN COMPUTING SELF-
EMPLOYMENT TAXES REINSTATED AND MADE PERMANENT.

(a) In General.--Paragraph (4) of section 162(l) is amended by
striking ``, or after December 31, 2010''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2012."

Expert again...My reading of this leads me to believe the deduction did expire (it was renewed annually in 2011 and 2012).

Assuming the deduction did expire for periods after 12/31/12, it is the amount above 10%.

Thanks for holding my feet to the fire. There is a dearth of information about this topic, so I am glad that digging did indeed answer the question.

Positive feedback closes out your question. I'm PDtax.


Expert:  PDtax replied 11 months ago.
http://beta.congress.gov/bill/113th-congress/house-bill/886/text is the cite for the text of the bill.
Customer: replied 11 months ago.

The bill you are citing refers to a different calculation in self-employment tax I believe. It looks like this bill currently has 0% chance of passing but it isn't really what I was wondering about.


 


I found this in TurboTax online for 2013. What happens in 2014 - when ACA kicks in - is another question:


 


https://turbotax.intuit.com/support/iq/Medical/Will-the-new-health-care-law--Affordable-Care-Act-or--Obamacare---affect-my-taxes-/GEN85490.html?tcfs=true&aid=33554434

Expert:  PDtax replied 11 months ago.
You're right. I remembered seeing news of the bill asking that the deduction be made permanent, and made the leap to assume that the deduction was not available for 2013. I saw reference to that same thing early on in looking at this for you, but both were incorrect.

The deduction is available for 2013. The bill does not prove or disprove the expiration of the deduction. The existence of ACA tax credits does not preclude the deduction.

The deduction remains for 2013. It should. health care costs are too high as it is, and not allowing self employed people the same tax deduction as employees is unfair.

Yes, in 2010 there was a self employment deduction change with health insurance.

So,...to recap,...

The SE health insurance deduction is available for 2013 under IRC 162 (l) and has not been repealed.

You will not lose that deduction, but keep in mind the health insurance Federal tax credit offset will be based on 2013 income.

2013, more so than in many years, will have incentives to keep income low. Tax planning to maintain your income level at or below prior year levels will be paramount to avoid unpleasant tax credit concerns.

Thanks again from Just Answer.
PDtax, CPA firm owner
Category: Tax
Satisfied Customers: 1936
Experience: 32 years tax experience, including four years at a Big 4 firm.
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