6 types of insurance you could deduct on your taxes, plus 2 you can’t
Ask your tax advisor about common insurance deductions you could take when filing your return, depending on whether you’re self-employed or not.
If you’re a freelancer, contractor or gig worker, you likely know that Friday is the deadline to make an estimated tax payment for the fourth quarter of 2020. For everyone else, you can start the process of getting your W2 and filling out your tax return on the 15th. As you gather your tax information, now’s a good time to review tax deductions so you can maximize your 2020 refund and make your 2021 spending count. To help you get back every penny you’re entitled to, here’s a quick refresher on which insurance premiums you can deduct.
Is health insurance tax deductible?
If you work for someone else, you can’t deduct premiums your employer pays. However, you can deduct health insurance premiums and healthcare expenses if the total amount you pay exceeds 7.5% of your adjusted gross income (AGI). To calculate your AGI, add up all your forms of income, then subtract any tax deductions.
If your total premiums exceed or come close to that threshold, you might be overpaying for health insurance. Now’s a good time to compare today’s best health insurance companies to get a better deal.
If you’re self-employed, you can deduct health and dental insurance premiums for yourself, your spouse and your dependents, though not as an itemized deduction. Instead, you would enter the total amount of the premiums on page 1 of your Form 1040, which would lower your AGI.
Is car insurance tax deductible?
Regardless of whether you work for yourself or someone else, you can deduct the cost of your car insurance if you used your vehicle for work purposes. However, if you are an employee and your employer reimburses you for your work-related vehicle expenses, you cannot deduct your car insurance.
Is private mortgage insurance tax deductible?
If you have PMI, you can deduct your premiums if your combined household AGI is less than $100,000. If your income exceeds that level, you’re out of luck.
Is business insurance tax deductible?
Yes. If you own or operate a for-profit business, your premiums for business insurance are tax-deductible.
Is life insurance tax deductible?
Life insurance premiums are generally not deductible at tax time, whether you work for yourself or someone else. One exception is if you’re a business owner and you pay for your employees’ life insurance — but you can’t be the beneficiary.
Is homeowners insurance tax deductible?
In general, you can deduct a portion of your home insurance premiums if you’re self-employed and use part of your residence as a home office. But if your income comes from an employer, sadly, you’re not eligible. It’s also worth noting that if your home is damaged in a natural disaster, you can often write off expenses that aren’t covered by your home insurance.
Is disability insurance tax deductible?
No, you can’t deduct your disability insurance premiums from your personal taxes. The IRS does not currently allow taxpayers to deduct premiums for insurance covering the loss of life, limbs, vision or hearing. Similarly, you cannot deduct premiums for insurance policies that cover lost wages. However, if you own a corporation, you may qualify for certain deductions.
What other related expenses can I deduct?
- State and local property taxes are deductible from your federal income tax, but the IRS now imposes a $10,000 limit on deductions of these taxes as well as sales tax and property tax. (If you’re married and filing separately, the limit is $5,000.)
- Unemployment compensation is considered taxable income, but workers’ compensation benefits are not taxable.
- Contributions to a health savings account (HSA) are fully tax-deductible, as are withdrawals from the account that go toward medical purposes.
How to save on insurance
If you’re in the market for a new insurance policy, whether it’s for your home, your car, your business, your health or your life itself, explore today’s best insurance companies and the coverage options available to you.