When you are filing taxes, you try to maximize your federal income tax deductions as much as you can. One way to reduce your tax bill is to take advantage of insurance-based tax deductions.
If you are an insurance policyholder, check out how you can deduct taxes on your insurance policies. Read on to know more.
1. Health insurance
The IRS knows how costly medical expenses are these days. So, in some cases, you have the opportunity to reduce your medical expenses.
For instance, taxpayers can deduct their medical expenses such as their health insurance premiums and unreimbursed medical expenses if the amount exceeds 10% of their adjusted gross income (AGI).
However, employer-sponsored health insurance premiums aren’t tax deductible. It’s because they’re paid with pre-tax dollars that is, the amount is deducted from wages before taxes are counted.
But, if you’re self-employed, you can deduct 100% of your medical expenses.
Read more: All you need to know about health insurance and your taxes2. Life insurance
Generally, life insurance premiums are not tax deductible.
However, in some cases life insurance premiums can be deducted such as when:
- Someone owns a C Corporation
- Business owner is not the beneficiary of the policy
- Employers offer group-term life insurance (deduct the first $50,000)
- Beneficiary receives the death benefit
3. Disability insurance
Tax deduction for disability insurance premium is complicated.
Whether or not your disability insurance premiums will be taxed depends on these 2 factors:
- Who pays the premium (you or your employer)
- What type of coverage you will get
As per the IRS publication 529, individual disability insurance premium payment is not deductible. Similarly, according to the IRS publication 535, business owners can’t deduct the cost of disability insurance premiums that cover the loss of earnings. However, the insurance premium is deducted only when it covers the overhead expenses of business operations during the time of disability.
If you make payments with pre-tax dollars, the amount is taxable. However, insurance premiums are tax-free when you pay the amount with after-tax dollars.
4. Car insurance
Personal car insurance premiums are not tax deductible. Whereas, car insurance paid for a vehicle which is used for business purposes is free from taxes.
5. Homeowner’s insurance
You can deduct your homeowner’s insurance only if you run a business from your home, where you can deduct the insurance premiums as business expenses. However, you can also deduct a portion of homeowner’s insurance used for rental purposes.
6. Credit card insurance
Credit card insurance premiums are tax deductible if you use the credit card for business purposes.
7. Mortgage insurance
Your private mortgage insurance (PMI) is deductible when your adjusted gross income (AGI) is below $109,000.
Tax deduction for mortgage insurance will be removed completely if your AGI is more than $109,000.
The last date of filing your tax return is 18th April 2017. So, as you can see you have less time left to file your tax return. However, if you want to reduce your tax bill, you can claim tax deductions on your insurance policies.