I heard that I can deduct my health insurance costs because I run my own business. Is this part of the health-care reform bill? How does it work?

If you are self-employed and your business is a sole proprietorship, single-member LLC, or sole-owner S-corp, you can indeed deduct your health insurance expenses for 2010, Bloomberg's Businessweek reported. This one-year provision is not a part of the health-care reform bill that passed in March, however. It was included in the Small Business Jobs and Credit Act that President Barack Obama signed into law in September.

"In this economic climate, any kind of bottom line tax savings is helpful," said Kristie Arslan, executive director of the National Association for the Self-Employed, a Washington-based lobbying group. "This is one of the few small business provisions that's been passed where business owners will actually see lower taxes on Apr. 15, 2011."

Her organization has championed the deduction for more than eight years and unsuccessfully tried to get it included in the health-care reform law.

The new provision corrects what Arslan calls a fundamental unfairness: Self-employed individuals cannot deduct the full cost of health insurance premiums as a business expense on their payroll taxes, as other business entities can do.

Although the new law authorizes the deduction only for 2010, Arslan says it's "a foot in the door" for self-employed individuals, who pay both the employer and employee portions of the payroll tax—a self-employment tax totaling 15.3 percent. Employees typically pay half that amount (7.65 percent) and their employers cover the other half as part of their payroll taxes. The new deduction exempts solo business owners from paying self-employment tax on the portion of their income that they spend on health premiums.

"This is a step in the right direction. We're hoping to extend it and make it permanent," Arslan said.

Make sure to ask your tax preparer about taking the deduction when you file your tax returns next year. To take advantage of it, you must buy your own insurance (rather than relying on a spouse's coverage or being uninsured) and you must pay self-employment tax on business income (rather than declaring a business loss). The deduction phases out above a $106,800 annual income limit. The provision is specifically geared for those who file a 1040 Schedule C business income tax form or a Schedule E earned income tax form, Arslan said.

Another important caveat: The new deduction does not apply to health insurance coverage that you may provide for any employees you have. There is a small business health-care tax credit, part of the health-care reform legislation, that you may be able to claim for that expense. More information on that tax credit is available at the IRS website.