South Carolina Life and Health Practice Exam

What percentage of health insurance costs can Lorenzo, who is self-employed, deduct from his gross income?

1. 50%

2. 75%

3. 100%

4. 25%

The correct answer is: 100%

Lorenzo, being self-employed, is allowed to deduct the full amount of his health insurance premiums from his gross income when calculating his adjusted gross income (AGI). This rule is designed to give self-employed individuals a similar tax benefit to that which employees receive through employer-sponsored health plans. The deduction applies to premiums paid for medical, dental, and certain long-term care insurance, provided the insurance coverage is established under the name of the self-employed individual. This provision helps to reduce the overall tax burden on self-employed individuals, which can be particularly significant since they must cover their own health insurance costs without employer contributions. It’s important to note that this deduction is limited to the amount of the self-employed individual’s net profit from self-employment. If Lorenzo has a net income of $50,000 and pays $7,000 in health insurance premiums, he can fully deduct that $7,000, thereby lowering his taxable income. This essential benefit can significantly impact Lorenzo’s financial planning and tax situation.