Question 1

A self-employed taxpayer had net earnings from self-employment of $100,000. They paid $12,000 in health insurance premiums for themselves and their family. They were not eligible to participate in any subsidized health plan maintained by an employer of their spouse. How is the $12,000 treated?

Accepted Answer

Self-Employed Health Insurance = Adjustment to Income (Above the Line). It is NOT a Schedule C expense (doesn't lower SE tax) and NOT an Itemized Deduction (unless you want it to be, which is worse).

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Putting it on Schedule C (wrongly reducing SE tax) or treating it as an itemized medical expense (subject to floor).

A self-employed taxpayer had net earnings from self-employment of $100,000. They paid $12,000 in health insurance premiums for themselves and their family. They were not eligible to participate in any subsidized health plan maintained by an employer of their spouse. How is the $12,000 treated?

How to approach this question

Full Answer

Common mistakes

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