For a sole proprietor, deducting medical expenses can be done a couple of different ways. The ideal method is if you employ your spouse in the business and have what is called a ‘Health Reimbursement Plan’ in place (also called a 105 plan). With that, you can reimburse your spouse through the business for all “out-of-pocket” medical expenses, as well as health insurance premiums for your spouse and family, including yourself! The advantage of this method is that these deductions lower both your overall self-employment tax and your income tax, which means significant savings to you.
If you do not employ your spouse in the business, you can still track and deduct 100% of your health insurance premiums, but the drawback over the previous method is that these deductions are taken on your individual tax return, not through your business. That means you can’t reduce the amount you pay in self-employment tax, and depending on your personal gross income, you are limited in the amount you may deduct for your ‘out-of-pocket’ medical expenses and medical mileage.
Note: If your spouse is an employee and you want to take advantage of the medical deductions, the health insurance MUST be under your spouse’s name and you MUST have a payroll service or being doing payroll yourself. If you are using this method, you will track medical expenses using the employee benefits category in Deductr.
If you do not have a spousal employee, you can track your medical expenses as any other person but to receive any deduction from your medical expenses, your expenses will have to exceed a certain percentage of your health insurance premium. You will track these expenses by using the Medical type expense.
Consult your tax professional to see if this fits your circumstances. This is not to be taken as tax advice. Please refer to our End User License Agreement.