ExpertHard1 markMultiple Choice
CPA · Question 33 · Area IV: Individual Taxation
A taxpayer operates a consulting business as a sole proprietorship. In the current year, the business had net income of $100,000. The taxpayer paid $6,000 for health insurance for themselves and their family. How is the health insurance payment treated for tax purposes?
A taxpayer operates a consulting business as a sole proprietorship. In the current year, the business had net income of $100,000. The taxpayer paid $6,000 for health insurance for themselves and their family. How is the health insurance payment treated for tax purposes?
Answer options:
A.
Deductible on Schedule C, reducing self-employment tax.
B.
Deductible as an adjustment to income (above-the-line) on Form 1040.
C.
Deductible only as an itemized deduction subject to the 7.5% floor.
D.
Not deductible.
How to approach this question
Identify the specific line item for Self-Employed Health Insurance (Adjustment to Income).
Full Answer
B.Deductible as an adjustment to income (above-the-line) on Form 1040.✓ Correct
B
Self-employed health insurance premiums are deductible as an 'adjustment to income' (above-the-line) on Form 1040. They are NOT deducted on Schedule C, so they do not reduce the self-employment tax liability. They are deducted to arrive at AGI.
Common mistakes
Putting the deduction on Schedule C (which would incorrectly lower SE tax).
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