Self-Employed Person

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Home Office Deductions

Effective January 1, 1999, individuals who work exclusively from their homes may take deductions for their home offices if they perform administrative and managerial tasks in those offices. They are eligible for these deductions even if the services they perform to generate their incomes are conducted outside the home offices.

To qualify, a taxpayer may have no other fixed location where he or she conducts substantial activities of the trade or business. Therefore, an investor who maintains an office outside the home or a salesperson who has a desk and equipment available in the broker's office-and meets with customers and clients at the broker's office-will probably be ineligible for the home office deduction.

A side benefit of this deduction is the additional deduction for business miles traveled to and from the home office.

Health Insurance Deductions

Employees who receive health care benefits from their employers do not have to add the value of these benefits to their gross incomes; i.e., such benefits are not taxable. Does it not then make sense that self-employed individuals should be able to deduct 100% of these self-paid costs from their taxable incomes?

The Tax Code gave a 40% above-the-line deduction for health insurance premiums paid in 1997. The Taxpayer Relief Act of 1997 slowly increased this percentage to 100%.

You may be able to deduct 100% of the amount you paid for medical and dental insurance and qualified long-term care insurance for you and your family.

How to figure the deduction.   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction.  However, if any of the following apply, you must use the worksheet in chapter 7 of Publication 535.

• You have more than one source of income subject to self-employment tax.
• You file Form 2555 or Form 2555-EZ (relating to foreign earned income).
• You are using amounts paid for qualified long-term care insurance to figure the deduction

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