7 Commonly Missed Insurance Related Tax Deductions
When it comes time to file your taxes, getting the best tax returns does not come down to skill; it comes down to your knowledge on the subject of tax deductibles. Unfortunately, it is often the case that taxpayers lose out on their credits and deductions, as they simply are not aware they exist. This is especially the case when it comes to tax deductibles on insurance policies. In fact, some of the most significantly overlooked deductions pertain to insurance. If you are concerned that you may be paying more taxes than you have to, then read on to learn about the most overlooked insurance deductions. Here are seven insurance-related deductions that you may be missing.
1. Medicare Premiums
Medicare premiums can be taken as a tax deduction. To do so, you should list it as a medical expense on the Schedule A, Form 1040. This deduction may be limited. Part B, which is the supplemental medical insurance, Part C, which is Advantage Plans and HMO, and Part D, which is the voluntary prescription drug insurance program are all deductible. Additionally, Medigap supplemental health insurance is deductible, but the entire amount must be more than 7.5 percent of your income. Medicare Part A premiums, on the other hand, are usually not deductible. If you have coverage through your social security, you will receive Medicare Part A since you paid your payroll taxes while you were employed. This is usually the case for people, which mean that they are unable to deduct their Medicare Part A. However, you may be able to deduct your Medicare Part A premiums if you did not pay your Medicare taxes while employed and you do not have coverage through social security.
2. Disability Insurance for the Self-Employed
Disability insurance is likely the most overlooked kind of premium that can be tax deducted. If you are self-employed, then you may deduct your disability expense as a business expense. If you decide to deduct your disability insurance premium, keep in mind that the benefits that were paid for by the policy will be considered taxable income. On the other hand, if you do not deduct the premium then the policy benefits are not taxable. This means that if you do become disabled, you should no longer deduct the policy’s premium on your taxes.
3. Health Savings Accounts
Another insurance tax perk is for those that do not have access to a traditional group health coverage policy. The health savings account combines a high-deductible health insurance plan with a tax-advantage component. If you choose to open an HAS, all contributions up to a maximum will be tax deductible even if you do not itemize. Additionally, any earnings that accumulate will be tax-free. Proceeds that are taken out of the account will also be tax-free as long as they are used for a medical expense that qualifies.
4. Health Insurance Premiums Paid After-Tax
If you paid for your health insurance premiums using your after-tax money, then you can deduct it from your taxes with several limitations. For instance, if you purchased a family or individual health insurance plan using the state health insurance exchange or from an insurance company, then the money you used to pay your monthly health insurance premiums may be used as a tax deduction. You can list the deduction on the Schedule A, Form 1040 as a medical expense.
5. Workers’ Compensation or Unemployment
It is imperative that you make the distinction between workers’ compensation and unemployment benefits from the state. Workers’ compensation is awarded to those who are unable to complete their work duties because of an injury, whereas unemployment benefits are taxable as they are a replacement for regular income, and so you must report it on the IRS Form 1040. On the other hand, workers’ compensation is not an income, and so will not be taxed.
6. Life Insurance
Life insurance premiums are indeed tax deductible as a business expense. Additionally, the death benefit is typically tax-free for individual policy owners. Even business-related life insurance beneficiaries are tax-free too. However, there are some situations in which the death benefits from a corporate life insurance policy are taxable. Employers that offer group-term life insurance coverage to their employees can deduct $50,000 worth of premiums. Any amount up to that limit is not considered income for the employees. Additionally, life insurance premiums can also be deducted for the majority of non-qualified plans like executive bonuses or deferred compensation. Typically, these premiums are compensation for the key executives that are under the plan’s rules. However, in some instances, the deduction cannot be taken out until the employee has received the benefit.
7. Self-Employed and Business Taxpayers
Those taxpayers who are unemployed, as well as those that own their own business entity, can deduct any business-related premiums of any sort. This includes such insurance policies as dental, disability, and health insurance premiums. Additionally, liability and legal coverage can be deducted as well. If the taxpayer chooses to report their actual expenses instead of taking the standard mileage rate, then vehicle insurance can also be deducted.
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