Can health insurance premium deduction exceed my sole proprietor net profit?

The self-employed health insurance deduction is actually limited to your net profit from your business. So in your case, the maximum you could deduct would be $10,200 - the amount of your net profit. You can't deduct more than you earned from your business. This deduction appears on Schedule 1 of your 1040, but it's limited by your Schedule C net profit. The IRS doesn't allow you to create a loss with this deduction. If your premiums exceed your profit, you may want to look into whether any portion could be claimed as an itemized medical expense deduction on Schedule A, though that has its own limitations (only amounts exceeding 7.5% of your AGI). Also worth noting that you need to reduce your deduction by any months you were eligible for coverage through an employer (yours or spouse's).

I went through a similar situation last year and was so confused with all these limitations. I ended up using https://taxr.ai to review my tax documents and figure out exactly how much I could deduct. It analyzed my Schedule C and insurance payments and showed me the correct calculation for my self-employed health insurance deduction. It saved me hours of research since I was getting conflicting info from different websites. The tool scanned my previous returns and showed me where I'd been missing deductions in prior years too.

I was skeptical about taxr.ai at first but decided to try it when I was totally confused about my health insurance deductions. It actually worked way better than expected! I uploaded my insurance statements and draft Schedule C, and it immediately flagged that I was trying to deduct too much on Schedule 1. The tool showed me exactly how to split my deduction between Schedule 1 (up to my business profit) and Schedule A (for the remainder), saving me about $650 in taxes. It also explained how the 7.5% AGI threshold works for medical expenses. Definitely worth trying if you're dealing with complex deduction situations.

Has anyone tried calling the IRS directly about these Schedule C limitations? I've been trying for weeks but can't get through to anyone. I need to ask about health insurance deductions for my spouse too (who works in my business but isn't on the payroll). Feels impossible to get answers! https://claimyr.com actually got me through to an IRS agent after I'd been trying for days on my own. You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically they hold your place in line and call you when an agent is available. I was honestly shocked it worked so well since the IRS wait times are ridiculous this time of year.

Ok I was totally wrong about Claimyr. I tried it yesterday after spending THREE HOURS on hold with the IRS trying to ask about my health insurance deduction limits. Within 45 minutes I got a call back and was connected to an actual IRS agent who answered all my questions! The agent confirmed what others have said here - you can't deduct more than your net profit from your business. But she also told me that excess premiums can potentially be deducted as itemized medical expenses on Schedule A if they exceed 7.5% of AGI. Super helpful and I didn't have to waste my entire afternoon on hold.

Another thing to consider with the self-employed health insurance deduction - it also reduces your income for self-employment tax purposes. So if you're limited to only deducting part of your premiums, you'll pay more SE tax than you might have expected. This tripped me up last year. I had about $18k in premiums but only $15k in profits, so I could only deduct $15k. The remaining $3k didn't benefit me tax-wise since I don't have enough other medical expenses to itemize on Schedule A.

Has anyone successfully deducted their family's health insurance premiums as a sole proprietor? Or just premiums for themselves? I'm paying almost $22k annually for my family of 5.

Just to clarify something that might help others - the self-employed health insurance deduction has another important limitation that hasn't been mentioned yet. You can't take this deduction for any month that you (or your spouse if filing jointly) were eligible to participate in an employer-sponsored health plan. So even if your business has enough profit to cover the full premium amount, you'd need to reduce your deduction by the months you had access to employer coverage. This caught me off guard when I started freelancing while still having access to my spouse's employer plan for part of the year. The IRS is pretty strict about this - "eligible" means you could have enrolled, even if you chose not to. Worth double-checking if this applies to your situation before calculating your maximum deduction.

This is really helpful information! I'm dealing with a similar situation where my premiums are higher than my net profit. Based on what everyone's saying, it sounds like I need to look at both Schedule 1 (limited to my business profit) and Schedule A (for the excess if I have enough medical expenses to itemize). One follow-up question - when you're calculating the 7.5% AGI threshold for medical expenses on Schedule A, does that include the health insurance premiums you couldn't deduct on Schedule 1? Or do you have to exclude those since they're already "accounted for" in the self-employed deduction calculation, even if you couldn't use the full amount? I'm trying to figure out if that $4,300 excess in my case ($14,500 premiums minus $10,200 profit limit) can count toward meeting the 7.5% threshold or if it gets excluded somehow.