From how to block out the distraction of roommates (or kids) to staying focused and motivated, you’ve got a lot of decisions to make once you go full-time freelance.
Whether you’re just starting a new business or you quit your previous job to pursue freelance full-time, you’re now tasked to think about your budget in a new way. Being self-employed means budgeting for state and federal income taxes, employer tax, web and domain hosting, marketing, utilities, travel expenses, apps and software, and more.
A big part of your budget as a full-time freelancer includes medical and dental expenses. Without medical insurance from an employer or coverage by your parent’s insurance plan, budgeting for medical expenses as a freelancer can be a new challenge.
Here’s which medical expenses you should budget as a freelancer, ways to mitigate these expenses, and what you can look forward to deducting.
Medical costs have been one of the leading causes for Americans filing bankruptcy. According to a Kaiser Family Foundation/New York Times survey, 20% of insured, working-age Americans had difficulties paying medical bills in the past year.
This includes routine checkups, dental care, hospital visits, emergency care and other medical and dental procedures.
The cost of being uninsured as a freelancer could mean scraping by to cover your medical bills — not to mention the price of penalties for taxpayers who are uninsured.
Penalties for being uninsured
Under the Affordable Care Act, if you make over a certain amount annually but decline to purchase health insurance, you will be charged a fee — unless you qualify for these health coverage exemptions.
The fee for not having health insurance in 2016 and 2017 is calculated two different ways:
- As a percentage of your household income.
- Per person: You’ll have to pay whichever is the highest amount.
Cost of dental care
Though you won’t get penalized for not having dental insurance, dental care can quickly become an expensive out-of-pocket cost if you’re uninsured. According the American Dental Association, the national average costs of dental visits and procedures without dental insurance are as follows:
- Annual dental exam: $44.10
- Annual cleaning: $61.14 (child), $82.08 (adult)
- Topical fluoride application: $31.70 (child), $32.59 (adult)
- Sealant application, per tooth: $44.12
- Root canal: $918.88
- Porcelain crown: $1,026.30
- Tooth extraction: $147.32
With some plans, you can get preventive dental care starting at $15 a month after your monthly premium.
Many dental insurance plans will cover 100% of two preventative care visits a year, including routine cleanings, exams, X-rays, topical fluoride and sealants. Dental insurance can reduce the cost of other procedures as well, such as fillings, extractions, crowns and root canals.
Which medical and dental expenses are tax-deductible?
As a freelancer, knowing what you’re eligible to deduct for your dental plan can make a big difference in your dental care budget. You might be able to write off the following medical and dental expenses:
- Health insurance premiums for you, your spouse and your dependents.
- Dental care and long-term care coverage.
- Insurance plans that cover children up to 26 years old.
Be sure to document each medical expense with receipts, credit card statements, and/or mileage records. You’ll need these statements of proof once tax season rolls around.
If you are a sole proprietor, a partner in a partnership, an LLC member, or an S-Corp shareholder (with more than 2% of ownership in company stock), you can deduct health insurance costs as a business expense if your business has employees. Health and dental care is not a business expense if you are the only employee in your business.
If you’re unsure of what you can and cannot deduct, talk to a tax professional.
Which health expenses are not tax-deductible for freelancers?
As a freelancer, your medical and dental deductions can’t exceed the annual income from your business.
Additionally, you can only deduct health and dental insurance for the months when neither you nor your spouse were eligible for health or dental coverage through yours or your spouse’s employer.
According to the IRS, you also can’t deduct the premiums for the following:
- Life insurance policies.
- Policies for loss of life, limb or sight.
- Policies that cover pay for an allotted amount of days if you’re hospitalized.
- Health insurance if you chose to pay your premium with tax-free distributions from a retirement account, and if the distributions from the retirement account would have been included in your annual income.
- Medicare taxes.
- Additional premiums that you pay for someone who isn’t your spouse or dependent, with some exceptions.
How to deduct medical and dental expenses
As a self-employed freelancer, you will use the Self-Employed Health Insurance Deduction Worksheet in the Form 1040 instructions to find out how much you can deduct for your medical and dental expenses. You will then file this amount using Form 1040. You’ll need to itemize your deductions to file your medical expense claims.
If any of the following applies to you, you will need to use the worksheet in Publication 535 to figure out your medical/dental deduction amount:
- You had more than one source of income subject to self-employment tax.
- You need to file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion.
- You are using amounts paid for qualified long-term care insurance to figure the deduction.
There are tons of individual dental insurance plans on the market. Between getting help paying for routine cleanings and knowing you won’t have to cover any dental emergencies out-of-pocket, dental insurance can be a huge relief while you work on growing your freelance business at home.