As a self-employed person, you need health insurance just as much as anyone else does. If you are a sole proprietor, your health insurance need is probably greater than the average person, because an extended illness or hospitalization could easily deplete your personal assets and endanger your business.

Most people get their health insurance through their employers. However, because you are self-employed, this option is not available to you. You're your own boss, but that also means you have to supply your own benefits.

Individual health insurance
Individual health insurance covers medical expenses on an individual basis. When you apply for individual insurance, you may be evaluated in terms of how much risk you present to the insurance company. This is generally done through a series of medical questions and/or a physical exam. Your risk potential determines whether you qualify for insurance and how much your insurance will cost. Individual insurance is somewhat more risky for insurers than group insurance, because group insurance allows the insurer to spread risk over a larger number of people. But it is important to remember that anyone can apply for individual health insurance, so this may be your best option for obtaining health insurance.

Deductibility of unreimbursed medical expenses

In general
If you itemize deductions and your unreimbursed medical expenses exceed 7.5% of your adjusted gross income (AGI) in any tax year, you may deduct the amount by which your unreimbursed medical expenses exceed this 7.5% threshold. Unreimbursed medical expenses include premiums paid for major medical, hospital, surgical, and physician's expense insurance, and amounts paid out of your pocket for treatment not covered by your health insurance.

Special rules for the self-employed
In addition to the general rule of deducting premiums as medical expenses, self-employed individuals can deduct a percentage of their health insurance premiums as business expenses. These deductions aren't limited to amounts over 7.5% of AGI as are medical expense deductions. The definition of self-employed individuals includes partners and 2% S corporation shareholders. If you meet the definition of a self-employed individual, you can deduct the following percentages of premiums for insuring yourself, your spouse, and your dependents:

This deduction is limited to amounts less than your earned income. Also, if you or your spouse were eligible for an employer-sponsored health plan for any part of the tax year, then health insurance costs you paid during that time cannot be used to calculate this deduction.