self employed health insurance

Self-Employed? 6 Tax Breaks You Can't Afford To Overlook This Year

Being self-employed has its benefits. When you work for yourself, you get to call the shots, set your own hours, and reject work you don't find stimulating or worth your while.

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But from a tax perspective, self-employment can be tricky. Not only are you required to pay estimated taxes on your earnings, but you'll also need to be strategic to avoid losing too much money to the IRS. If you're self-employed and are gearing up to file your return this year, here are a few important tax breaks you should be aware of.

1. Mileage on your vehicle

If you use your personal vehicle for work purposes, whether it's driving to visit clients or getting around town to pick up job-related supplies, you can claim mileage on your tax return. For the 2018 tax year, the IRS will let you claim 54.5 cents per mile you drive in the course of doing your job. For 2019, it's $0.58 a mile. If you're going to take a deduction for mileage, however, be sure to maintain a detailed log that shows how far you drove throughout the year and what the driving was for.

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2. Business travel expenses

If you do any travel in the course of your business, such as to attend conferences or seminars, you're allowed to deduct the costs associated with those trips. That includes line items such as airfare, baggage fees, trips to and from airports, car rentals, and hotel stays. That said, you can only claim expenses for trips that are work-related in nature. You can't book a weeklong trip to a beach resort, have one 30-minute discussion with an associate staying there at the same time, and call it a business expense.

3. Health insurance premiums

One downside of being self-employed is having to cover the cost of health insurance yourself. The good news, however, is that you're allowed to deduct your health insurance premiums on your taxes, and if you pay for insurance for your spouse or children out of pocket, you can deduct those costs as well. However, you're only eligible for this deduction if neither you or your spouse is eligible to participate in an employer-subsidized health plan.

4. The home office deduction

If you're self-employed and do your job from home, you might be eligible to claim a home office deduction on your taxes. To do so, you must use that home office space exclusively for business (meaning, setting up a laptop on your kitchen counter doesn't count), and that home office must constitute your primary place of business.

You can claim this deduction in one of two ways. The simplified method will give you $5 back per square foot of office space you have, up to a maximum of 300 square feet, or $1,500. The standard method allows you to tally up your home expenses and deduct the amount that's proportionate to the amount of space your office takes up. For example, if you spend a total of $20,000 on home expenses (think electricity, maintenance, repairs, property taxes, and so forth), and your office takes up 10% of your home, then you get to claim $2,000.

5. The Child and Dependent Care Credit

As a self-employed worker, you can't write off the cost of child care completely (though it would be nice). What you can do, however, is get a portion of your child care costs back via the Child and Dependent Care Credit. This credit allows you to claim up to 35% of up to $3,000 in child care costs for one child, or up to 35% of up to $6,000 in child care costs for two or more children. All told, that credit could be worth as much as $2,100, depending on your income.

6. Half of your self-employment tax

All workers are required to pay Social Security and Medicare taxes. Salaried workers are liable for half that amount, while their employers pay the other half. Self-employed workers, on the other hand, are responsible for paying Social Security and Medicare taxes in their entirety (otherwise known as self-employment tax). The good news, however, is that you're allowed to deduct half of your self-employment tax when you file your return, which can help lessen that blow.

If you're self-employed, it pays to reap all of the tax benefits you're eligible for. Make sure to claim these items, as applicable, on your taxes so that you can save more money and give less away to the IRS.

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Self-employed? Get A Full Health Cover Before Buying A Hospital Cash Policy

India has the second largest freelance workforce with about 15 million people who are self-employed, with no fixed source of income. The number is set to rise with more and more people looking for flexi work timings and added perks of being self-employed.

Toffee Insurance, a Gurgaon-based insurance technology start-up, owned by Toffcover Core Technologies Pvt. Ltd, offers policies with small covers across verticals such as health, travel, personal accidents and other non-life segments. To cater to the increasing number of people joining the gig economy, including Swiggy delivery executives and Uber and Ola drivers, Toffee Insurance recently launched a salary protect plan called the Kamai Bachao Yojna.

The policy has been underwritten by Apollo Munich Health Insurance Co. Ltd. “We wanted to create something for the daily wage earner. Typically, when an Ola driver gets hospitalised, he would access public health services and this won’t cost him much. But what happens is he’ll have to forego his earnings for at least two or three days. This policy, in its simplest form, will cover such people for the loss of salary if they’re hospitalised for more than 24 hours," said Rohan Kumar, chief executive officer, Toffee Insurance.

Main features

The product is essentially a simpler and more affordable version of the traditional hospital cash insurance policies offered by established insurers, except that it comes with a lower annual premium and relatively lower cash payout. With an annual flat premium of Rs. 449 (across all age groups), Toffee’s plan pays out Rs. 1,000 per day for hospitalisation up to 30 days a year. Individuals between 18 and 65 years of age are eligible to buy the product. Most exclusions which come with traditional policies such as 30 days waiting period and coverage for pre-existing diseases after 48 months are valid under this policy as well.

Any salaried person can buy this policy, irrespective of whether he gets daily wages or a salary at the end of the month. The product is essentially an affordable version of Apollo Munich’s standard hospital cash plan. “The drawback with standard hospital cash plan is that payouts are low. Rs. 1,000 a day is not going to help you compensate for loss of income as well as hospitalisation costs," said Abhishek Bondia, principal officer and managing director, SecureNow.in.

Initially, hospital cash plans were offered as top-ups by insurers but now most offer it as standalone policies. Typically, these plans cover loss of income between 30 and 180 days with a payout of up to Rs. 3,000 per day. Some insurers also double the cash payout if you’re hospitalised in ICU or hospitalised outside your city of residence. Most insurers offer an additional convalescence benefit (during the recovery period) of Rs. 5,000 for hospitalisation for more than 10 days. The premiums in these plans vary according to the age at which you enter the policy and the plan you pick. Individuals between six months to 65 years of age are eligible to buy the policy. Some insurers also allow you to convert this policy into a family floater plan.

Mint take

The product may seem affordable because the annual premium is low, but understand that the amount payable is also less. The product targets daily wage earners and freelancers but it may not cover all costs because the payout is small.

Note that, like other hospital cash policies, Kamai Bachao Yojna makes the payout only at the end of the hospitalisation period and not on a daily basis. So, this may not make sense for a daily wage earner who will need to arrange money during hospitalisation.

“If you have a disposable income, the first product you should go for is a pure health insurance policy. Because medical expenses are quite high and you should be able to cover them first," said Bondia. The next step is to buy a critical illness policy which would give you a lump sum that can be used to cover up for loss of salary and other costs. “Once you have a critical illness policy and personal accident plan in place, you should then buy hospital cash policy to cover for other expenses like food, medicines and ambulance costs, if any," he said.

If it’s a major accident or a prolonged illness, having just a salary protect plan that gives Rs. 1,000 a day may not work. “Ideally individuals who have a comprehensive health cover and who are looking for quick solutions to meet their needs of supporting other incidental expenses linked to hospitalisation, may find this useful," said Vishal Dhawan, certified financial planner and founder, Plan Ahead Wealth Advisors.

Another limitation of the product is that it covers you only for the days you are hospitalised. In case of an accident where you’re advised rest for a certain period post hospitalisation, this product may not be useful because it doesn’t pay convalescence benefit during recovery.