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Self-employeds: Maximize insurance write-off with creative thinking

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It took many years, but self-employed people are now even-steven with other business entities when it comes to deducting health insurance. They can write off 100 percent of their health insurance premiums, including amounts paid for family coverage, up to the business's amount of net income.

If you're a sole proprietor who writes off health insurance, take heed of some good news and bad news in a new IRS ruling. (IRS chief counsel advice 200524001)

Good news: Sole proprietors can write off health insurance costs from their business's earned income even when they purchase the policy in the person's name, not the business's name.

Potential bad news: The IRS also said that owners of multiple businesses can't aggregate the profits and losses from those businesses in an effort to maximize the net income limit. In other words, if you have one health insurance plan, you can only deduct the insurance premiums against income from the one business considered the health insurance coverage sponsor.

Strategy: Turn this ruling to your advantage with creative thinking.

How? Maintain separate plans for separate businesses. Example: You can use the net income limit from one business and apply it to a health plan. Then use the income from another business and apply it to a dental plan.

That may provide a bigger deduction than you could claim if both plans were under the same business's umbrella.

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