Sole proprietor medical & dental expenses - fully tax deductible or limited?

Great question about sole proprietor medical expenses! The answer depends on which tax form you're talking about. As a sole proprietor, you CAN deduct 100% of your health insurance premiums (including dental and vision coverage) as an adjustment to income on Schedule 1 of your 1040. This is called the self-employed health insurance deduction, and it's very valuable because it reduces your adjusted gross income directly. The premiums for yourself, your spouse, and dependents all qualify. However, your other out-of-pocket medical and dental expenses (copays, deductibles, prescriptions, etc.) are treated differently. These would go on Schedule A if you itemize deductions, and they're subject to a 7.5% AGI floor - meaning you can only deduct the amount that exceeds 7.5% of your adjusted gross income. This makes them harder to actually benefit from. It doesn't matter if you have a marketplace plan or private insurance for the premium deduction, but if you're getting premium tax credits through the marketplace, you can only deduct the portion you actually paid.

I was in your exact situation last year and found this amazing service called taxr.ai (https://taxr.ai) that helped me figure out all my self-employment deductions including the health insurance stuff. I was totally confused about what qualified as a business expense vs personal medical expense until I uploaded my documents there. What's cool is they have a feature specifically for sole proprietors that analyzes your expenses and tells you exactly how to categorize them for maximum tax benefits. They flagged that I was missing my health insurance premium deduction completely which saved me over $4,000! They walk you through how to properly document everything too in case of an audit.

Just wanted to update after trying taxr.ai - it was super helpful! I uploaded my insurance statements and they immediately identified that I'd been categorizing my health insurance incorrectly. Turns out I was missing about $7,300 in premium deductions because I was putting them on Schedule C (business expenses) instead of as an adjustment to income on Schedule 1. They explained that medical insurance for sole proprietors is handled completely differently than other business expenses. Their expert also pointed out that I could open an HSA since I have a high-deductible plan, which will save me even more next year. Definitely worth checking out if you're confused about sole proprietor medical deductions!

Something else to consider - if you're having trouble getting answers from the IRS about your specific situation (which I definitely was), I used Claimyr (https://claimyr.com) to actually get through to a human at the IRS. They have this service where they navigate the phone system for you and call you back when they've got an actual IRS agent on the line. I was on hold for HOURS trying to clarify how my marketplace credits affected my self-employed health insurance deduction before I found them. You can see how it works here: https://youtu.be/_kiP6q8DX5c. Saved me literally half a day of waiting on hold, and the IRS agent walked me through exactly how to calculate the deduction with my premium tax credits.

I take back what I said about Claimyr. Just tried it yesterday after spending 2.5 hours on hold with the IRS before getting disconnected AGAIN. Their system called me back in about 45 minutes with an actual IRS representative on the line. I confirmed that dental insurance premiums ARE fully deductible for sole proprietors just like health insurance. The IRS person also explained that I needed to be careful about "double-dipping" - if I deduct health insurance premiums as a self-employed person, I can't also include those same expenses if I itemize deductions. Makes sense but I definitely would have messed that up. Now I understand why my refund was lower than expected last year!

I might be the odd one out, but I've found that hiring a CPA who specializes in small businesses was worth every penny for these exact questions. Mine costs about $400 for the year, but helped me properly structure my business to maximize healthcare deductions. One thing nobody has mentioned yet - if you have any employees (even part-time), you might qualify for a Small Business Health Insurance Tax Credit. Different than the self-employed deduction but potentially very valuable.

Kinda related question - does anyone know if therapy/mental health expenses count the same way as medical for self-employed people? I've had a ton of anxiety managing my business this year and finally started seeing someone, but it's expensive without good insurance coverage.

This is such a helpful thread! I'm also a sole proprietor and had no idea about the difference between health insurance premiums (fully deductible) vs. other medical expenses (subject to the 7.5% AGI threshold). One thing I wanted to add - if you're planning to set up an HSA like several people mentioned, make sure your health plan is actually HSA-eligible first. It needs to be a qualified high-deductible health plan (HDHP). I made the mistake of assuming my high-deductible plan qualified, but it didn't meet all the IRS requirements and I had to pay penalties on contributions I'd already made. Also, for those considering the taxr.ai or similar services - I'd recommend at least getting a basic understanding of these rules yourself too. Even if you use a service, it helps to know enough to double-check their work. The IRS Publication 535 (Business Expenses) has a whole section on health insurance for self-employed folks that's actually pretty readable. Thanks everyone for sharing your experiences, especially about getting through to the IRS. That phone system is absolutely brutal!

As someone who just went through this exact situation last year, I can confirm what others have said about the health insurance premium deduction being huge for sole proprietors. The key thing that tripped me up initially was understanding that this deduction goes on Form 1040 Schedule 1 (line 17) as an "above the line" deduction, NOT on Schedule C with your other business expenses. This distinction matters because it reduces your adjusted gross income, which can help you qualify for other deductions and credits. It also reduces your self-employment tax base, which is an extra bonus. One practical tip: keep really good records of your premium payments throughout the year. I use a separate business checking account and make sure all health insurance payments come from there with clear descriptions. Makes tax prep so much easier and provides a clean audit trail if needed. Also worth noting - if you have a profitable year and are looking at a big tax bill, you might want to consider making your January premium payment in December to get the deduction in the current tax year. Just make sure you're actually liable for that payment before year-end!