Sole prop and self employed health insurance deduction

[Belgarath]

In case anyone is interested in the potential difference, I calculated a couple of examples manually. Assuming Schedule C incomes of $200,000 and $100,000, with a pretty hefty health insurance premium deduction of $16,000, the difference in the maximum contribution between someone claiming this deduction and someone who doesn't, is $42.00 and $226.00 respectively. If you drop the premium in half, reduce the differentials by half. Rounding could change these numbers by a small amount.

All this, of course, is assuming my several thumbs didn't get tangled on the calculator...

[Belgarath]

Wow, and after cogitating on this over the weekend, and re-reading the instructions to the Publication 560, I had this 100% backwards. You don't, for purposes of calculating the pension deduction, take the SEHI into account. That's what the asterisk on Line 2 of the 560 worksheet is telling you. Serves me right for being in a hurry.

Sigh...this is actually very good news, as it makes the data gathering easier!

[Tom Poje]

ft william would seem to agree, just received the following from them:

................

The Small Business Jobs Act of 2010 (SBJA) provides (for 2010 only) that health insurance for self-employed persons can be deducted from self-employment net earning for purposes of income tax.

There has been debate about what this means for purposes of retirement plan earned income. Some commentators have suggested the health insurance deduction would raise earned income for purposes of retirement plans. The technical explanation of SBJA, Publication 560, and informal conversations with the IRS confirms that the temporary health insurance deduction has no effect on earned income for retirement plans.

[Belgarath]

Thanks Tom. Wish I'd seen that before I wasted my time on reading it wrong! Ah well, I made a lovely bourguignon with the crow, with pearl onions, mushrooms, a little bacon, bay leaf, garlic, salt & pepper, and red wine, and thickened the gravy with arrowroot. (I've eaten enough crow in my time so that I have perfected the art of making it taste good)