Is there an impact on taxes when paying Health Insurance premiums through your business?

ToddLay

September 14, 2020

Many of you may already know that I’ve been in the accounting and CFO services line of work for more or less 10 years now. So from time to time, we get these questions from clients. I thought it would be good to go ahead and openly share with everybody and get some feedback, maybe even answer some questions along the way.

QUESTION:

what are the tax implications if my spouse buys insurance for the two of us, using income from our business?

First, let me give you a little background about the client. They have a sole proprietorship business here in the Sacramento area. Most of the time, it is only the two of them who manage it. Occasionally, they do get a part-time worker or employee. 

Basically, to answer that question, there are two things we need to consider. One, if you’ll be able to qualify and write this off through the business, then you’re good. Also, if the name of the policy that you end up getting is actually in the name of your club or in your name as the business owner and the sole proprietor, or if it’s actually in the name of the business itself, you’re also good. If not, you want to make sure that you get that in place.

Two is, if you, for whatever reason, are not able to get that taken care of through the person or the group that is underwriting the policy, you can deduct it on your personal 1040 tax return. And one of the ways you could do that now is that you have to go ahead and itemize the expense. And to be able to do that this year, itemizing your mortgage insurance, charitable giving, even your medical insurance, you have to remember that the standard deduction is $24,800 for married filing jointly and if you’re single, it’s $12,400.

So basically what that means is, for instance, if you have your premiums for the course of the year and it is less than 24,000, you’re not going to be able to deduct it. The reason is, the standard deduction is already more than what your premiums are for the year. And the same goes if you’re single.

So that might be two options to kind of look at. The other is that you want to make sure that if you do get it through the business, you can go ahead and write off the premiums, but you’re not able to go ahead and look at deducting the copays. That’s a whole different conversation altogether. I’m happy to do a video on that at a future date. You’re just able to go ahead and look at deducting the actual premium itself.

If you have any questions about how to manage your personal and/or business money, you are very welcome to message me. You can also send me an email support@simplebackoffice.com or click here to set up an appointment!

Have a great week ahead.

TODD LAY
Chief Experience Officer
SimpleBackOffice

“Know Your Numbers, Know Your Business”
916-520-8560