The cost of group-term life insurance coverage up to $50,000 per employee is deductible on the "employee benefits" line (Line 14) of your Schedule C, unless you are directly or indirectly a beneficiary of the policy. Life insurance on yourself as the business owner is not deductible as a business expense on your Schedule C.

Health insurance. Group health benefits that you provide to employees and their dependents are generally deductible. Beginning in 2003, the cost of your own health benefits under the plan are also 100 percent deductible.

Unless you operate in Hawaii, there are no federal or state laws that require you to have a health plan for employees. However, if you do have a health plan, your plan must meet certain federal requirements or be subject to punitive excise taxes.

To avoid these excise taxes, your plan must include certain accessibility and portability features, most notably those that impose strict limits on the extent to which preexisting health conditions of employees or their dependents can be used to limit coverage. If you have 20 employees or more, you must provide COBRA benefits to employees who lose coverage under the plan - that is, you must continue to allow them to purchase coverage at their own expense for up to 18 or 36 months, depending on the reason for the loss of coverage.

Work Smart If you haven't spoken to your insurance representative recently, we suggest you contact him or her to be sure your plan provides the required coverage.

Since 2003, self-employed individuals - that is, sole proprietors, partners, LLC members, and S corporation shareholders owning more than 2 percent of the shares - can deduct all of their own health insurance premiums. Previously, only a portion of a self-employed individual's health insurance premiums could be deducted.

Health insurance premiums for yourself and your dependents are deductible on the first page of your Form 1040 (Line 29), rather than on your business tax form (e.g., Schedule C for sole proprietors). As a result, the cost of the premiums serve to reduce your adjusted gross income (AGI), which in turn can increase your ability to take advantage of certain tax breaks like Roth IRAs and tax breaks for education. Since the premiums are not considered an itemized medical deduction, they are not limited by the 7.5 percent of AGI floor, as are most medical deductions.

Long-term care. Long-term health care contracts are relatively new arrangements designed to provide coverage if you become chronically ill or disabled after reaching a specified age, such as 50. Long-term care policies greatly expand the time period over which benefits will be paid out, when compared to standard accident and health policies. Another advantage is that, unlike Medicare coverage, long-term care contracts may cover the cost of custodial care, as well as skilled nursing care. These two advantages often make long-term care contracts a preferred way of pre-funding nursing home care for the elderly.

If certain specified requirements are met, long-term care insurance contracts issued after December 31, 1996, will generally receive the same income tax treatment as accident and health policies.

Employer-provided long-term care premiums are deductible by the employer as employee benefits. For the business owner, they are treated as health insurance premiums, which means they are also 100 percent deductible in 2003 and later years.

Among the Business Tools are Form 1040 and Schedule C. They are in Adobe Portable Document Format (.pdf), and you will need the free Acrobat Reader to view and print the file.