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The percentage of health insurance costs deductible by self-employed individuals is increased to 60% for tax years 1999, 2000 and 2001. The percentage increased to 70% for the year 2002 and is scheduled to be 100% deductible in the year 2003.
This deduction is an Adjustment to Income. It is subtracted from Total Income to compute Adjusted Gross Income. Self-employed health insurance is a page one deduction and has the advantage of reducing the percentage limitations on all itemized deductions and reducing income tax. The deduction here does not have the same tax saving effects as an employee business plan that is available to C-type Corporations and spouse employees of sole proprietorships. These types of employee benefit plans also reduce self-employment tax, and employer and employee FICA (social security and medicare) tax. For more information see sec 125 plans under Agri-plan and Biz-plan sections in the Fall Tax Planning Guide.