Momwith6kids is quite correct. I want to emphasize a point she made - namely the that health insurance premiums (including medicare and "Medigap" premiums) are deductible. This expense can be quite substantive and the premiums are fully deductible for the business owner as well as what he or she pays to cover the spouse. Most responsible persons purchase health insurance no matter what meaning - whether or not they were in business for themselves or whether or not it was deductible, they would consider it a necessary and unavoidable expense. So the bottom line is that if one is self-employed, the sum total of the yearly premiums for health insurance - which is typically quite a lot of money - is essentially tax-free income.
