South Carolina Insurance Practice Exam

What percentage of health costs paid from earnings can sole proprietors deduct?

1. 50%

2. 75%

3. 100%

4. 125%

The correct answer is: 100%

Sole proprietors can deduct 100% of their health insurance premiums from their taxable income, which is why this option is correct. This deduction applies to health insurance premiums paid for themselves, their spouses, and dependents, making it a significant tax advantage for those who are self-employed. This deduction is especially valuable because it directly reduces the income subject to taxation rather than just being an adjustment that reduces taxable income after accounting for other expenses. By allowing a full deduction, it incentivizes self-employment by reducing the overall tax burden for sole proprietors, helping them to invest more in their business and cover their personal health expenses effectively.