Lets see what everyone here thinks

[joanmcq]

That is if you are SE and have SE health insurance? The question comes up because I have a new client that fell on hard times and took an early IRA distribution. because all of his tax is SE and the penalty on early withdrawal, it is actually more beneficial to put all of his health insurance on Sch A as a medical expense rather than take a portion as SE health (the SE health deduction is limited by the SE income, so part goes to Sch A anyways) because the allowable medical expenses on Sch A reduce the penalty for early w/d. So is taking the SE health mandatory if it is allowable, or can I put it all on Sch A? The only state tax he is paying is the CA penalty for early w/d, so every dollar of medical expenses gives him $2 of tax reduction.

[mcb39]

That is if you are SE and have SE health insurance? The question comes up because I have a new client that fell on hard times and took an early IRA distribution. because all of his tax is SE and the penalty on early withdrawal, it is actually more beneficial to put all of his health insurance on Sch A as a medical expense rather than take a portion as SE health (the SE health deduction is limited by the SE income, so part goes to Sch A anyways) because the allowable medical expenses on Sch A reduce the penalty for early w/d. So is taking the SE health mandatory if it is allowable, or can I put it all on Sch A? The only state tax he is paying is the CA penalty for early w/d, so every dollar of medical expenses gives him $2 of tax reduction.

Quickfinders page 6-6 (under strategy) says "Do not include any amount deducted on line 29 of Form 1040 in figuring the medical expense deduction on Schedule A."

Pub 17 on page 142 says "See chapter 6 of Pub 535, Business Expenses for more information."

This was a very good question though I have never had an instance when it wasn't more beneficial to take it on line 29; generally because of the 7.5% limit on Schedule A.

[joelgilb]

That is if you are SE and have SE health insurance? The question comes up because I have a new client that fell on hard times and took an early IRA distribution. because all of his tax is SE and the penalty on early withdrawal, it is actually more beneficial to put all of his health insurance on Sch A as a medical expense rather than take a portion as SE health (the SE health deduction is limited by the SE income, so part goes to Sch A anyways) because the allowable medical expenses on Sch A reduce the penalty for early w/d. So is taking the SE health mandatory if it is allowable, or can I put it all on Sch A? The only state tax he is paying is the CA penalty for early w/d, so every dollar of medical expenses gives him $2 of tax reduction.

You can choose to take the insurance soley on schedule A instead. But I agree with mchampine, I find it hard to believe it is a better result on schedule A.

Also, note that many States, such as IL, would then not get the benefit of reducing the State Income.

[mcb39]

You can choose to take the insurance soley on schedule A instead. But I agree with mchampine, I find it hard to believe it is a better result on schedule A.

Also, note that many States, such as IL, would then not get the benefit of reducing the State Income.

Wisconsin, as well....

[joanmcq]

Its because all of the CA state tax he is paying is penalty on early w/d of IRA (3% in CA), which is reduced by the amount of the deduction of medical expenses on Sch A over 7.5% of AGI. I agree this is really wierd, but the reduction of the 10% penalty is more than the 7.5% increase in AGI.

Code section 213 (which covers the medical expense deduction) refers to 'any amount ALLOWED under sec 162' so I figure it comes down to does 'allowed' mean taken or what could have been taken, as the famed 'allowed or allowable' in the case of depreciation. My brain is spun as to which means which at this point.

[joelgilb]

Its because all of the CA state tax he is paying is penalty on early w/d of IRA (3% in CA), which is reduced by the amount of the deduction of medical expenses on Sch A over 7.5% of AGI. I agree this is really wierd, but the reduction of the 10% penalty is more than the 7.5% increase in AGI.

Code section 213 (which covers the medical expense deduction) refers to 'any amount ALLOWED under sec 162' so I figure it comes down to does 'allowed' mean taken or what could have been taken, as the famed 'allowed or allowable' in the case of depreciation. My brain is spun as to which means which at this point.

No. It is not the same as the depreciation rule. You can choose to deduct the full amount on schedule A, so long as you do not deduct anything for self employed health insurance on the 1040 directly. It is only "Not Allowed" on schedule A if you deduct it somewhere else.

[joanmcq]

Thank you. That's what I thought, but then was unsure which 'allow' meant what. Head spinning is slowing down. I'm glad I'm not a lawyer or maybe I should've been with all the pondering over the exact meaning of words I've done lately.

I think I need a vacation.

[kcjenkins]

Joan, you said it yourself, if you think it through. That depreciation rules says 'allowed or allowable', but the SE Health Insurance deduction says only 'allowed'. So you don't have to reduce by 'allowable', only for 'allowed'.

And pat yourself on the back, by the way, for thinking 'outside the box' on this one, and not just 'assuming' that the usual way is always the best way. It's that sort of thing that separates the true professional from the 'form-fillers'.

[joanmcq]

Thank you KC! after today I need a pat on the back! Every situation I've come across today has been out, out, out, out-of-the-box..

At least its not 102 degrees today so I can go home and relax...no, got a CSTC meeting, so I get to hob-nob with tax geeks for a few hours.

I really need a vacation!