Entrepreneurs who have a single-member LLC, sole proprietorship or sole-owner S-corporation can deduct their health insurance under a one-year provision in the Small Business Jobs and Credit Act that President Barack Obama recently signed into law.
Previously, the self-employed had to pay the employer and employee portions of the payroll tax for a total of 15.3 percent. Other business entities are already able to deduct healthcare premiums as a business expense.
Business owners should deduct the expense from their taxes next year as long as they meet the following stipulations: They are not declaring a business loss on their taxes, they buy their own insurance and they have an annual income of less than $106,800.
In order to receive the tax credit for health insurance for employees, the self-employed must turn to the healthcare reform legislation. Eligibility requirements for the Small Business Health Care Tax Credit include paying annual wages less than $50,000, having fewer than 25 full time workers and covering at least 50 percent of healthcare coverage expenses for some employees.
The credit can cover up to 35 percent of expenses in 2010, and this maximum increases to 50 percent in 2014. After this, the credit will gradually phase out. Entrepreneurs just starting an LLC could benefit greatly from the tax credits.