Deductible Out-of-Pocket Insurance

• When deciding which insurance premiums you can deduct, you have to limit them to medical, dental, vision and qualified long-term care policies. Life insurance policies, polices that make payments to you if you miss work, and car insurance policies that contain a medical benefit cannot be included as a deduction on your income taxes.
  
  

Self-Employed Insurance Premiums

• When you are self-employed and have no employer insurance plan, you have to pay out-of-pocket for your insurance. If you are also ineligible to get insurance through a spouse's employer, the IRS allows you to claim the amount you pay in premiums as an adjustment to income, rather than as part of the medical expenses deduction. However, if you claim your medical insurance premiums through this deduction, you cannot also add them to your medical expenses deduction.
  
  

Medical and Dental Expenses Deduction

• The medical and dental expenses deduction includes out-of-pocket premiums you pay during the year, but also any other qualifying medical expenses. However, the deduction only allows you to deduct the amount of your expenses exceeding 7.5 percent of your adjusted gross income. For example, if your adjusted gross income equals $70,000, only expenses in excess of $5,250 can be deducted. Continuing the example, if you have $6,000 in out-of-pocket expenses, you could only deduct $750.
  
  

How to Claim the Deductions

• To claim either deduction, you have to file Form 1040. With the self-employment health insurance deduction, you do not have to itemize; you simply report the amount of your deduction on line 29. To claim the medical expenses deduction, you have to itemize your deductions using Schedule A. Report your total expenses paid on line 1 and your adjusted gross income, listed on line 38 of your Form 1040 tax return, on line 2. Calculate 7.5 percent of your adjusted gross income and report it on line 3. Subtract the result on line 3 from your total expenses and report the final value of your deduction on line 4.