Tax Tips

• You are a self-employed sole proprietor with a profit on your Schedule C

• You are a farmer with a profit on your Schedule F

The deduction is limited to your Schedule C or F net profit.

Net profit is determined by taking the net profit on your Schedule C or F and deducting 50% of the self-employment tax you paid plus any contributions to qualified retirement plans (i.e., individual 401K or SEP plans).

The above also applies if you are a partner with net earnings from self-employment reported on Schedule K-1 (form 1065).

For the above to apply the plan must be established under your business.

For self-employed individuals filing a Schedule C or Schedule F, the policy can be either in the name of the business or in the name of the individual. For partners, the policy can be either in the name of the partnership or in the name of the partner.

If the partnership pays the premium, the premium amount must be included as guaranteed payments in your gross income. If you pay the premium personally, the partnership must repay you and include the amount as guaranteed income in your K-1.

If you are a more than 2% shareholder of an “S corporation,” you can either pay the premiums yourself or your S corporation can pay them. When the S corporation pays the premium for you the amount should be reported as wages in your W-2. When you pay the premium, the S corporation must reimburse you and include the amounts in your W-2 wages.

Joe

Learn more about Joe DePetris, Jr., and IBO tax return preparation and tax issues at IBO Bookkeeping 101.

Find more Tax Tips for IBOs from Joe DePetris, Jr., CPA.

This article is provided as an educational resource for your guidance, and is strictly informational. It does not constitute legal, accounting, or other professional counsel. Nothing included herein implies a recommendation by the author, the IBOA International, or Amway in North America, of any course or method of regulatory compliance. Readers and users who intend to take, or refrain from taking, any action based on information contained herein should first consult with their qualified tax advisor, preferably a C.P.A., or appropriate regulatory authorities.