Let’s be real, how often do you get to hear the words “surprise” “IRS” and “nice” in the same sentence?  I know it’s rare, but a nice surprise is exactly what senior citizen small business owners are getting this year from the IRS.  For 2010, your Medicare payment counts towards the self-employed health insurance deduction.

This is brand new.  So new in fact, that people don’t seem to know where this new rule came from.  In the past, Medicare payments were never allowed to be used for the self-employed health insurance deduction.  The rule is not in the Small Business bill that was passed earlier this year, and it doesn’t seem to be hidden in the numerous pages of the health care bill either. 

So where can you find this new mystery tax ruling?  It’s right in the 2010 instruction book for the 1040 tax form.  It says: Medicare Part B premiums can be used to figure the deduction.  …For more details, see Pub. 535

 

Now if you go to Publication 535, you’ll find it says:  Medicare Part B premiums are not considered medical insurance premiums for purposes of the self-employed health insurance deduction.

 

Oopsies!  But according to the IRS, a new Publication 535 is being produced and it will say that you can make the deduction. 

So what’s it worth to you?  Depending upon your tax bracket – a few hundred dollars!  The average Medicare Part B premium is about $1200.   For 2010 only, you can use that $1200 to reduce your self-employment tax which would save you about $180.  Additionally, you’d reduce your regular taxable income by $1200 so you’d save even more.

Should you be worried about the conflicting rules?  No.  According to the IRS, the 1040 instructions are the rule to use. I don’t expect this rule to stick around for next year, but enjoy the gift while you’ve got it.