New for 2010, self-employed individuals can deduct their health insurance premiums on Schedule C. Why is this great news? It is great because it means that you will not have to pay self-employment tax of 15.3% (for Social Security and Medicare) on that portion of your income. So, for example, if you are self-emploed and pay $6,000 per year in health insurance premiums, you just saved $918 in taxes that you would have paid in the past!
In previous years self-employed health insurance was taken as an above-the-line deduction. This served to reduce your adjusted gross income and your income tax, but it did not reduce your self-employment income, so you still paid the self-empolyment tax on that portion of your income. This year it is deductible for both. Hooray!