How to Deduct Employee Benefits on Schedule C, Line 14

If you are a Sole Proprietor with employees, there are numerous employee benefits that you can deduct on Schedule C. Are you aware of what those are? If not, read on and get the scoop on this type of deductible small business expense.

First, let's discuss what should not be deducted on Line 14. Note that the Schedule C description for Line 14 reads as follows: "Employee benefit programs (other than line 19)." So we go to Line 19 and read "Pension and profit-sharing plans." In other words, do not include pension plan expenses or other employer-provided retirement plan expenses on Line 14.

Now on to the good news: what kinds of expenses can you deduct on Line 14? Here's an overview of the most common types of employee benefit plans:

1. Accident and Health Insurance Plans. Do you provide a health insurance plan for your employees? The amount of premium you pay is a deductible business expense for you and a tax-free benefit to your employees. Some employers pay 100% of the premium on behalf of their employees. Others share the expense, with the employer paying part and the employee paying part. If you are sharing the expense, be sure to only deduct your part of the premium payment.

Also, be careful not to deduct any health insurance premium you pay for yourself on Line 14. Self-employed individuals are never considered an employee of the Sole Proprietorship, so you are not allowed to deduct your own health insurance premiums on Schedule C. You may still qualify for a health insurance deduction, but you must take the deduction on Form 1040, Line 29. Check the rules on that, however, as there are specific criteria for qualifying.

One more comment here: If your spouse happens to be an employee of your business, you can put her on the health insurance policy as the primary insured, and you would be covered as one of her dependent family members. End result: you do get to deduct your own health insurance premium on Schedule C. There are at least two tax advantages to this approach: 1) You don't have to qualify for the Form 1040, Line 29 deduction, which is disallowed if you have a loss on Schedule C; and 2) Taking a deduction on Schedule C rather than Form 1040 reduces not only your federal income tax, but also your Self-Employment Tax, resulting in an approximate 15% additional tax savings.

2. Group Term Life Insurance Plans. Again, you only get to take this deduction for your employees, not for yourself. Sorry!

3. Dependent Care Assistance Programs.

Looking for more small business tax tips? For a free copy of the 25-page Special Report "How to Instantly Double Your Deductions" visit http://www.YouSaveOnTaxes.com Wayne M. Davies is author of 3 ebooks on tax reduction strategies for small business owners and the self-employed.

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