Recent tax acts have provided significant relief for self-employed individuals.
Health Insurance Deduction
The "above-the-line" deduction for health insurance premiums is increasing. It is scheduled to rise to:
- 45% in 1998 and 1999
- 50% in 2000 and 2001
- 60% in 2002
- 80% in 2003 through 2005
- 100% in 2007 and beyond
Retirement Changes
Self-employed individuals can now make matching contributions to 401(k)s and SIMPLE IRAs, not just elective deferrals. The penalty for excess distributions has also been repealed.
Home Office
The definition of a principal place of business has been expanded, making it easier for many self-employed people to claim the home office deduction if they use their home for administrative or management activities.