Self-Employed in Texas? Here’s How to Deduct Health Insurance and Medical Expenses the Smart Way

If you’re self-employed in Austin—running your own LLC, freelancing, or doing contract work—you probably buy your health insurance through the Marketplace (Healthcare.gov). But come tax time, many folks don’t know the smartest way to deduct those health premiums and medical bills.

Here’s a simple guide using real-world math to show when you should use Schedule C vs Schedule A.

The Big Picture

There are two ways to deduct healthcare costs:

1. Schedule C (Business Deduction) Some premiums or expenses can be tied to your business and reduce self-employment income, which lowers both income tax and self-employment tax (15.3%).

2. Schedule A (Itemized Deduction) You deduct health expenses as part of itemizing—but only if they exceed 7.5% of your adjusted gross income (AGI). Many people don’t hit that threshold.

   
   

So Which Is Better?

Here’s a quick framework:

• Health insurance premiums for yourself and your family? Use the Self-Employed Health Insurance Deduction (line 17 of Schedule 1, not on C or A directly). You get the full deduction even if you don’t itemize.

• Out-of-pocket medical expenses (co-pays, glasses, prescriptions)? If you’re not itemizing (most Texans aren’t), these expenses give you zero tax benefit unless they go on Schedule C.

  
  

Use Schedule C If…

You can tie the expense to your business work. Examples:

• Physical therapy or massage related to a work injury? Deductible.

• Eye exam or glasses used while working long screen hours? Possibly.

• Mental health services to manage work stress? In some cases, yes.

  
  

A Quick Example:

Let’s say you earned $60,000 from your Austin-based business.

• You paid $500/month for Marketplace insurance = $6,000/year → Deductible as Self-Employed Health Insurance (line 17, Schedule 1).

• You spent $2,000 on therapy and medications related to burnout from overworking.

  
  

If you put the $2,000 on Schedule A, you’d need over $4,500 in total health expenses before it even counts. But if it’s a business-related burnout issue? You could write it off on Schedule C and potentially save $600+ in taxes.

Bottom Line

Don’t leave money on the table. If you’re self-employed in Texas, think of health expenses in three buckets:

1. Premiums → Use the self-employed insurance deduction.

2. Work-related health costs → Use Schedule C.

3. Everything else → Itemize on Schedule A only if you qualify.

   
   

Want help sorting through what applies to you? Book a chat and let’s take a look together.