11 Tax Deductions For Independent Insurance Agents
Unlike some insurance agents, you look forward to tax season. Every deduction you claim is validation of your impressive organization skills. Plus, who doesn’t want extra money?
That’s why you’re reading this article.
Dan Seidman of Got Influence once said, “Great insurance sales pros can predict the future. They know what can happen so they do 3 things to create a future they want.
1. They pre-decide how to respond to as many things in their life as possible.
2. They set activities (or behaviors) to address these events.
3. They create accountability relationships to ensure their successful outcomes.
For example; Got a tax deadline coming up? You need all your paperwork 2 weeks ahead. So set that deadline for when and where you’ll compile and hand everything off to the person who’s managing those tax filings. Someone else must know your deadline and activities, to hold your feet to the fire (or kick you in the tail to encourage you).
That is how you control your future with outcomes you want.”
We couldn’t agree more. Here are 11 tax deductions you can take advantage of this year to help maximize your business income.
Mileage (Standard Rate)
If you use a vehicle for business you may be eligible to deduct your auto expenses based on how many business miles you drove. In 2017 you can deduct $.535 for each business mile you drove ($.54 per mile in 2016). The standard mileage deduction is available for self-employed individuals like insurance agents that drive outside of a ‘normal commute’ – like between clients. There are a few circumstances that can prohibit you from deducting your miles, however you may still be able to deduct your actual vehicle expenses based on your business use percentage.
Bethany is a life insurance agent whose normal commute to work is 10 miles. She calculated using Hurdlr that she drove an extra 2,400 miles outside her normal commute to visit various clients and attend meetings and seminars for work during 2016. Using tax deduction information from 99Deductions.com, she took the IRS mileage deduction of $0.54 per mile for 2016 ($0.535 per mile for 2017), Bethany can deduct $1,296 from her income before calculating taxes.
Where To Take It: Schedule C (Form 1040) line 44
The IRS allows you to deduct reasonable advertising expenses that are directly related to your business activities. The deduction for advertising expenses is broad and can include a number of expenses depending on what industry you work in.
Troy is a local insurance agent who spent $75 on new business cards and $300 on a Facebook campaign to advertise his insurance agency during the year. Because these are relevant expenses to his insurance business, Troy is able to deduct the $375 spent on advertising from his gross income before calculating his tax payment.
Where To Take It: Schedule C (Form 1040) line 8
You may be eligible to deduct the portion of your home expenses related to your business through the home office deduction, however there are a few things you need to know: Your home office needs to be used exclusively for business. This means your couch, exercise room, and kitchen table don’t count. Your home office needs to be a fully dedicated work space. Further, it needs to be used regularly for management and administrative functions. If you are allowed to take the home office deduction you can take it in two ways, simplified and regular.
Example (Simplified Method)
Patricia is an independent insurance agent who primarily works from home. She converted the 400 square foot guest room in her house into a home office, which she uses to make sales calls and fill out paperwork. Because Patricia is so busy, when tax time rolls around she does her research and selects the simplified method for a home office deduction, which is $5/square foot up to 300 feet. She deducts the maximum $1,500 from her gross income, even though she potentially could have deducted more if she itemized her home office expenses.
Example (Regular Method)
Terry is an insurance agent who converted the guest bedroom in his house into an office, which he uses exclusively for his insurance sales. When it comes time to do his taxes, Terry decides to try itemizing his home office expenses since he suspects it’ll be a bigger deduction than the simplified method. Terry’s office is 225 square feet out of 2,000 total square feet in his house. His rent is $1,800 per month, and utilities were $250 a month. Terry’s home office expense can be calculated as follows: (Rent + Utilities) x 12 = $24,600 x percentage of home expenses used for office. Terry’s home office percentage is 11.25% (225 sq. feet / 2,000 sq. feet), therefore the applicable home expenses Terry can deduct on his business’ tax return are $2,767.50, or $1,642.50 more than what he could have claimed if he took the simplified deduction.
Where To Take It: Schedule C (Form 1040) line 30
Unless using the simplified method, complete Form 8829, then list total on Line 30 of Schedule C.
Insurance agents may regularly have to entertain customers, clients, or other employees as part of normal business activities. These meals can be either partially or fully deductible depending on the circumstances. Generally, the deduction for business meals is limited to 50% of the total cost (meal + tax + tip), however, there are certain circumstances where your meals could be 100% deductible.
Jesse wants to learn from the office hotshot, Rob, how to increase his life insurance sales this quarter, so he invites Rob out to dinner. While picking Rob’s brain on insurance sales techniques, they order a couple glasses of beer and some burgers. Jesse pays for the meal to thank Rob for his advice, which came out to $82 after adding the tip. Because the dinner was for the purpose of discussing business matters, Jesse is able to deduct 50% of the total bill from his income, or $41.
Where To Take It: Schedule C (Form 1040) line 24b
Insurance agents often need to travel away from home to meet with clients, attend conferences, trade shows and conduct business development. If you travel for business, whether it be to a neighboring city, a different state, or even outside of the country, your travel expenses will generally be deductible as long as the primary purpose of your trip was for business.
Olivia, a life insurance agent, is traveling to a city 250 miles away in order to give a presentation about group health insurance to a local business there. She stays for two nights at a Holiday Inn for $110 and uses the wifi to do work from her hotel room, which costs $15 a day. Olivia is able to deduct the $250 total travel expenses, in addition to 50% of any business meals and mileage from her tax return.
Where To Take It: Schedule C (Form 1040) line 24a
Conventions, Seminars, and Trade Shows
Many insurance agents regularly attend industry trade shows, conferences and seminars both near and far to support their businesses. These events allow business owners an opportunity to network with other agents and industry leaders, not to mention stay on top of the latest technology and innovation in their respective fields. Often times these events have a high price tag but it is important to remember that if the event you attend serves a legitimate purpose it’s cost may be deductible come tax time.
Phillip, an insurance agent, travels from Oklahoma City to New Orleans for a seminar to learn about the most recent insurance trends and network with other agents. He pays for the conference and hotel room out of pocket and attends both days. After the conference is over, Phillip stays in New Orleans to meet up with some fraternity brothers for a bachelor party. They spend the weekend boozing and partying on Bourbon Street. Phillip would be able to deduct the cost of the insurance seminar, the hotel room, travel/mileage to New Orleans, and 50% of meals during the business conference, but not any meal, travel, or lodging costs incurred after the seminar ended.
Where To Take It: Schedule C (Form 1040) line 27a
Training and Education
If you take classes or training courses to further your professional education you may be eligible to deduct your tuition, related course materials and certain travel costs. There are a number requirements you must meet to be able to deduct your education expenses, however, the most important points for independent insurance agents to take note of is that your training and education cannot qualify you for a different trade or business, they cannot be for the purpose of meeting minimum educational requirements, and they must maintain or improve the skills required in your field.
Jasper is required to take a continuing education course annually in order to maintain his insurance license. He’s able to take this course online, which costs $40, but while browsing through the course offerings he decides he also wants to take a course on annuities, which is $25. Jasper is able to deduct the $40 from his income as a business expense but not the $25 annuity course, which is unrelated to his current trade.
Where To Take It: Schedule C line 27a
Being a successful insurance professional often requires that you participate in some “extracurricular” activities to help further your business goals. If you pay to be part of a trade group, professional organization, business league, public service organization, or board related to your insurance business. these could all be considered deductible business expenses.
Cynthia is an independent life insurance agent based in Arlington, Virginia who belongs to the International Association of Insurance Professionals. The Association keeps her updated on current events in the industry with monthly newsletters and helps her network with other insurance agents around the country. 2015 dues were $96 in addition to $30 of Northern Virginia chapter dues. Cynthia is able to deduct the entire $126 of professional dues from her annual self-employment income as a business expense.
Self-Employed Health Insurance
Being an entrepreneur has it’s benefits, but it also comes with some additional responsibilities, one of which is finding your own health insurance coverage and paying the premiums. Fortunately, the health insurance premiums you pay for yourself and your family may deductible if you report business earnings on Schedule C and had a profit for the year.
Jimbo is an independent property & casualty insurance agent based in West Virginia. During the year, he had $47,000 of taxable self-employment income. He paid $6,200 during the year on healthcare premiums to insure his wife, Sally, and their three kids. Sally is a stay-at-home mother. Because Jimbo’s net income exceeds his health insurance premiums and he has no other option for health coverage, the entire $6,200 is deductible on Jimbo’s 1040.
Where To Take It: Form 1040 line 29
Did you know that the self employed can also benefit from many of the retirement savings tax benefits regular 9-5’ers take advantage of? One of the simplest savings options available to entrepreneurs is the individual retirement arrangement (IRA). Traditional IRA’s allow you to contribute a portion of your income to your retirement account without paying income tax on your contributions until you withdraw them (presumably when you retire). Because income tax on your contributions is deferred, your contributions (subject to IRS limits) are deductible in the year you make them, which can create a nice tax break for many entrepreneurs.
Sylvester is a 42 year-old licensed insurance agent in Reno, Nevada. His net income from commissions in 2015 was $48,000. Because he lives alone with his cats, Sylvester doesn’t need that much disposable income, and so he made the maximum IRA contribution of $5,500. He can deduct this amount from his gross income on line 32 of Form 1040.
Where To Take It: Form 1040 line 32
The IRS requires entrepreneurs to pay both the employee and employer portion of their “self-employment tax”, which includes payments into the Medicare and Social Security programs. If insurance agents earned less than $118,500 in net profit during the year, the tax is 15.3% of 92.35% of their profit. The IRS allows insurance agents to deduct half of the self-employment tax they paid during the year as an expense on their year-end return.
Phyllis is an independent insurance agent who had net business earnings of $45,000 in 2015. She used Hurdlr to calculate the self-employment taxes she owed, which came out to $6,358 for the entire year. Phyllis paid this in quarterly installments during the year. She also made sure to calculate her income tax and remembered that 50% of what she paid in self-employment taxes were deductible on her 2015 tax return.
Where To Take It: Form 1040 line 27
Want the best marketing advice from independent insurance agents? Checkout our independent insurance agents marketing guide.