It is almost Tax Day, and the burning question every taxpayer asks this time of year is: “What is tax-deductible?”
So when it comes to your insurance premiums, what can you claim on your deductions?
Let’s take a look at the different kinds of insurance, which will impact whether or not they are tax-deductible.
Is car insurance tax deductible? That depends on your employment. Generally speaking, car insurance premiums are deductible for those that are self-employed, people who heavily rely on their own personal automobile for work such as performing artists, or armed forces reservists.
In these cases, the expenses of owning a vehicle are often all included in a deduction, such as repairs, depreciation, gas and oil, and maintenance. Typically, taxes can be deducted by figuring outan average mileage ($0.56 per mile in 2021) or via actual expense records.
NOTE: If you opt for the mileage route, you cannot deduct car insurance premiums. If you track actual expenses, you can deduct the insurance premiums.
Generally speaking (as each individual case may have unique circumstances), life insurance premiums are not tax-deductible. The tax break here comes in the form of the benefits paid to your beneficiaries after your death.
Life insurance provides a tax-free cash flow for your family after you are gone. While it does not offer you a tax deduction while paying into it, it can be a major financial relief for those grieving your loss.
If your employer provides your health insurance, you cannot take an additional tax deduction, as your amounts are deducted from your check on a pre-tax basis already. However, if you have to pay health insurance premiums yourself, you have the option to seek a deduction.
Typically, you may choose to take a deduction if you:
- Itemize your deductions (not allow a standard deduction)
- Pay health insurance premiums directly, not through your employer
- Have medical expenses totaling more than 7.5% of your income for the year
The Best Advice
At the end of the day, the individual tax deductions for each family are unique to your circumstances. The best advice is to seek the assistance of a professional CPA or tax professional. Knowing the ins and outs of tax law is a daunting task – not to mention one that is always changing!
Instead of trying to reeducate yourself each year, you can find your best helping hands in those of a professional. Reach out today if you have questions about your insurance or financial needs, as we are able to help you in either case!