In 2003, small business owners were for the first time allowed to deduct the cost of health insurance for income tax purposes. However this deduction came after self employed income tax was calculated. Let’s take a minute and talk about self employed tax. If you are an employee your employer calculates Social Security and Medicare tax on your wages and withholds it from your paycheck. The employer then submits the amount withheld from your paycheck and an equal amount they are responsible for to the US Treasury. If you are self-employed then both halves of the tax are your sole responsibility. Both halves equal 15.3%.
Before 2010 if you were self employed you first paid 15.3% tax on your net income and then you were allowed a deduction for your health insurance. For one year only the Small Business Act of 2010 allows self employed individuals to deduct the cost of health insurance from their business income and then pay self employment tax.
Now for the first time and for one year only self employed individuals in sole proprietorships, partnerships and S-Corps treat health insurance the same way. It would be nice if they made this ruling permanent.