How can you best obtain affordable health care coverage in 2013 if you’re self-employed? Depending on your situation, you might be able to go through the “back door.”
Strategy: Hire your spouse to work for your business. Then cover your spouse under your health insurance plan as an employee. As a result, you’re allowed to provide insurance to dependents of your spouse—including yourself!
For years, deductions claimed by self-employeds for health insurance expenses were limited, but now you’re entitled to deduct 100% of the cost. So you can deduct the health insurance costs you provide for yourself. However, the deduction for a self-employed individual is claimed on your personal tax return, rather than as a business expense.
This is generally less advantageous for self-employeds. Reason: Your net income is higher for self-employment tax purposes. For 2013, you’re required to pay 15.3% on the first $113,700 of self-employment income and 2.9% on amounts above that. And you can’t deduct the health insurance premiums from your self-employment income.
Thus, even with the 100% deduction, the back-door method is still preferable. This reduces your business income on all levels.
Tip: Significant health care law changes take effect soon. We’ll have more in future articles.