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Been Googling all day and can't find anything definitive.

I left my job in January of 2010, and have been working on a 1099 basis since then (as a sole proprietor). I have been paying COBRA premiums for 10 months. My "company" is profitable for the year, and my net profits more than cover the cost of my COBRA premiums.

It looks like if I want to take COBRA premiums on Schedule A, the payments must exceed 7.5% of my income (they don't).

Can I take COBRA payments on Schedule C or on 1040 Line 29?

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This is a late response and somewhat off topic, but you might want to investigate getting individual coverage. For me it was roughly 20-30% less than COBRA. Even the non-preferred rates were signficantly cheaper. And taking the deduction was straightforward -- which reduced the cost further. –  bstpierre Apr 9 '11 at 2:49
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5 Answers

up vote 9 down vote accepted

The basic idea is that the average person can't deduct health care costs unless they're really onerous. But a business can, and as a self-employed person, you can deduct those costs from the businesses earnings... as long as the business is really generating enough profit to cover the health insurance costs. That's why most people get their health insurance from their employer, actually.

The relevant IRS rules say:

"You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents if you are... A self-employed individual with a net profit reported on Schedule C (Form 1040)."

For 2010, thanks to the Small Business Jobs Act of 2010, you can even deduct the premium from your income before deducting the self-employment tax (Source).

I'm sure that when you get your tax returns and instructions for 2010 this will all be spelled out.

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Thanks for your answer. However the first link you provided also says: "The insurance plan must be established, or considered to be established as discussed in the following bullets, under your business. For self-employed individuals filing a Schedule C, C-EZ, or F, a policy can be either in the name of the business or in the name of the individual." Since COBRA is (presumably) in the name of my former employer, I can't take this as a deduction? –  Phil Sandler Nov 25 '10 at 18:25
    
I have also seen suggestions online that said COBRA can be deducted via line 29 on Form 1040. This sounds promising but would not allow me to lower self-employment tax as you noted. So confusing . . . –  Phil Sandler Nov 25 '10 at 18:34
    
Correction: the average person can't deduct healthcare premiums unless they're really onerous or part of an employer-sponsored group plan (in which case they're usually a pre-tax deduction from your pay in the first place) –  KeithS Feb 6 '13 at 2:06
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I am very late to this forum and post - but will just respond that I am a sole proprietor, who was just audited by the IRS for 2009, and this is one of the items that they disallowed. My husband lost his job in 2008, I was unable to get health insurance on my own due to pre-existing ( not) conditions and so we had to stay on the Cobra system. None of the cost was funded by the employer and so I took it as a SE HI deduction on Line 29. It was disallowed and unfortunately, due to AGI limits, I get nothing by taking it on Sch. A. The auditor made it very clear that if the plan was not in my name, or the company's name, I could not take the deduction above the line. In his words, "it's not fair, but it is the law!"

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http://www.ehow.com/about_4625753_cobra-as-selfemployed-health-insurance.html

This link makes it clear... it has to be itemized, and is subject to the > than 7.5% AGI rule.

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When you take the self employed health care deduction on on Line 29 of form 1040 for 2010 it also will lower your self employment tax. See line 3 of Schedule SE. You report your net earnings from self employment less line 29 from 1040.

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Here is a quote from the IRS website on this topic:

Self-Employed Health Insurance Deduction:

You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependents. The insurance can also cover your child who was under age 27 at the end of 2011, even if the child was not your dependent. A child includes your son, daughter, stepchild, adopted child, or foster child. A foster child is any child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.

One of the following statements must be true.

You were self-employed and had a net profit for the year reported on Schedule C (Form 1040), Profit or Loss From Business; Schedule C-EZ (Form 1040), Net Profit From Business; or Schedule F (Form 1040), Profit or Loss From Farming.

You were a partner with net earnings from self-employment for the year reported on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc., box 14, code A.

You used one of the optional methods to figure your net earnings from self-employment on Schedule SE.

You received wages in 2011 from an S corporation in which you were a more-than-2% shareholder. Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2, Wage and Tax Statement.

The insurance plan must be established, or considered to be established as discussed in the following bullets, under your business.

For self-employed individuals filing a Schedule C, C-EZ, or F, a policy can be either in the name of the business or in the name of the individual.

For partners, a policy can be either in the name of the partnership or in the name of the partner. You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business.

For more-than-2% shareholders, a policy can be either in the name of the S corporation or in the name of the shareholder. You can either pay the premiums yourself or your S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business.

Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction. If you previously filed returns without using Medicare premiums to figure the deduction, you can file timely amended returns to refigure the deduction. For more information, see Form 1040X, Amended U.S. Individual Income Tax Return.

Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer cannot be used to figure the deduction.

Take the deduction on Form 1040, line 29.

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