SE Health Insurance deduction for SCH SE

[Cathy]

Instructions for Line 3, Sch SE states: For 2010 you can reduce your net self-employment.....

Question: Is this an option or is this a must do.....seems as if an option......just want to see if anyone else has addressed this issue. Have clients (me too) that really don't want their SE wages to be reduced by $12,000+ as retirement is not too far down the road.

Thanks!

Cathy

[grmy2h]

For what it's worth... a rep at IRS told another preparer locally (yesterday) that it was optional, but if on line 29 then it had to be on SE also.

The other preparer didn't feel real comfortable with rep. so I'm not sure that I would take this as a yes....

[kcjenkins]

If putting it on Line 29 meant it had to be on the SE, it would go there automatically. The reason you have to fill in the box at the top is because it is an option. I read the related code back in Jan, and I agree with how ATX is handling it as an option.

[i'm sure if I am wrong someone will tell me so, with cites. LOL]

[grmy2h]

KC, I agree also, however some poor soul at the IRS does not.... go figure.. :)

[kcjenkins]

A lot of the people answering the phones at the IRS know almost nothing, they just have a database to consult. If they do not know enough, they often tell you the wrong answer, even with that.

[grmy2h]

I just called the other preparer out of curiosity to see exactly what was said... didn't find that out, but found out the reason for the call was because the preparers client got a check from IRS for the exact amount that the deduction would have yielded had it been on the SE.

There was no letter (at least the client says they didn't get one) and the preparer was trying to get to the bottom of it.

[kcjenkins]

The letter of explanation always comes separately, sometimes before and sometimes after the check.

[Cathy]

I just called the other preparer out of curiosity to see exactly what was said... didn't find that out, but found out the reason for the call was because the preparers client got a check from IRS for the exact amount that the deduction would have yielded had it been on the SE.

There was no letter (at least the client says they didn't get one) and the preparer was trying to get to the bottom of it.

Thanks everyone....also the above helps tremendously too....especially if the return was filed by paper!!??

If it was indeed filed by paper, key punch operator decided to take the deduction herself/himself. Although I resent being told by IRS that I MUST efile returns, it will eliminate the summer calls from clients where the IRS employee entered the wrong figures on the wrong lines, etc.......

Always amazed why IRS employees don't take a quick look at THEIR work when the paper return refund/amount due doesn't jive with the one they entered into the IRS system. Guess that "ain't my job" mentality is alive and well at IRS.

Take care,

Cathy

[grmy2h]

Just made another call..... tax return was efiled with SE health insurance deduction on line 29, but NOT on SE.

[Cathy]

Just made another call..... tax return was efiled with SE health insurance deduction on line 29, but NOT on SE.

O'kay....very interesting....seems as if IRS is saying it IS mandatory IF Health Insurance was on Line 29, either that or it got kicked out of the system because of the new change and whoever reviewed it didn't realize it was an option. :wall:

[MN2V]

I just called the other preparer out of curiosity to see exactly what was said... didn't find that out, but found out the reason for the call was because the preparers client got a check from IRS for the exact amount that the deduction would have yielded had it been on the SE.

There was no letter (at least the client says they didn't get one) and the preparer was trying to get to the bottom of it.

I also had a client get a refund check from IRS. In this situation both H&W are SE and both have their own health insurance.

The IRS wanted to deduct the entire health insurance deduction from each person before figuring SE. I told client to put check in

a savings acct until they ask for it back. It is easier than trying to return the check and tell the IRS they are wrong....

[Cathy]

Tip...If anyone has trouble with IRS not agreeing with a client's (or your own) decision NOT to include the deductible health insurance from page one of the 1040 on Schedule SE, the instructions for Schedule SE lists the "Self-employed health insurance deduction" under "Optional Methods" on page SE-5, in addition to, of course, the wording for the instructions found on page SE-3 which state: " For 2010, you can reduce your net self-employment".....there's a big difference in "can" and "shall" or "must".

I never thought I would not want to decrease my self-employment taxes....but as we age, we seem to put our priorities in order....and as my health insurance deduction for 2010 is $12,258, it's already a big help to avoid paying income taxes on that amount!

I just finished my return and will e-file it in a couple of minutes....and of course, after it's e-filed and accepted, I'll swear to NEVER wait til the last minute for my own return...yeah, right!

Take care everyone,

Cathy

[jainen]

>>I read the related code<<

kc, please give your citation for what you read. As far as I know, there is only Section 162(l), which says, "The deduction allowable by reason of this subsection shall not be taken into account in determining an individual's net earnings from self-employment." That is why Schedule SE makes you subtract it out. If ATX ignores the wording on Line 3 of either Section A or B, they made a programming error.

Cathy, you are misreading the instructions, which are written in non-technical terms without any authority. All they are saying is that if you use one of the optional methods to calculate SE income, you can use the same figure to further calculate the health insurance deduction. As for "can," that is why the IRS phone clerk (who also speaks in non-technical terms without any authority) says it's optional. You DO get to choose, but it's still a package deal. You can't just pick out the part you like. Note that the very next sentence says, "Be sure to subtract this amount," meaning that's part of the deal.