What Tax Deductions Can Insurance Agents Use For Their Business?

It’s tax season again, and I’m going to outline a tax deductions specifically for independent insurance agents.

First and foremost, get a professional to help prepare your tax return.

The following is only my understanding and includes the fact that an ordinary expense is a common or accepted expense in our industry. A necessary expense is one that’s helpful and appropriate for your business.

Second, anything you use for both home and business must be divided up into accurate percentages.

For example, say you have a home office that’s 400 square feet.

If your entire home is 2,000 square feet, you can only deduct 20% of your mortgage payments, insurance, utilities, repairs, and so on.

I took this information from Publication 535; check to make sure there isn’t a newer one.

This might make it easy to see a full overview of what you can deduct, to help you go over this with your tax advisor.

Car Allowance

• Mileage driven.
• Gasoline.
• Oil.
• Repairs.
• Depreciation.
• Parking fees.
• Tolls.
• Registration fees.

The standard mileage rate for 2022 is 62.5.5 cents per mile.

Use Schedule C and Form 2106 for these items.

Continuing Education

• State licenses.
• Renewals.
• Courses.
• Certifications.
• Subscriptions to professional, technical, and trade journals that deal with your business field.
• Books.

Insurance

• Health insurance.
• Long-term care insurance.
• Dental insurance.
• Business insurance.
• Part of your homeowner’s insurance.
• Vehicle insurance.

For these items, use Schedule A, Form 2106 and Form 1040. Note that you can only deduct insurance if it’s for your business or if you’re self-employed.

For homeowner’s insurance, you can deduct part of the cost based on the square footage of your home office.

Work Travel

• Meals and entertainment.
• Flights.
• Baggage fees.
• Taxis.
• Hotels.
• Tips.

These expenses go on Form 2106.

Half of the meals and entertainment tab can be deducted for business-related meals and entertainment.

You must keep receipts, list who was entertained, and record the purpose of the meeting.

Note that, if the meal is lavish or outrageously expensive, it will not count as a valid deduction.

Office Space

• Home office.
• Utilities.
• Heat.
• Lights.
• Power.
• Telephone service, but only for long-distance calls or a second line (the first line is not deductible).
• Internet.
• Water.
• Sewage.
• Office desk.

Repairs

• Reconditioning floors.
• Repainting the interior or exterior walls.
• Cleaning and repairing roofs and gutters.
• Fixing plumbing leaks.

Here, use Form 8829, Schedule C, and Schedule A.

For these deductions, divide the office space square footage by the square footage of the entire residence.

Once you figure out the percentage of your home that is just for your business, you can calculate the deductions above.

Office Supplies and Equipment

• Computer.
• Printer.
• Scanner.
• Paper.
• Ink.
• Software.
• Maintenance.
• Paper clips.
• Postage stamps.
• Presentation folders.
• Copying costs.
• Overnight deliveries.
• Stationery.
• Pens.
• Paper.
• Stapler.
• Docusign.
• Internet fees.
• Greeting cards.

Use Schedule C.

To deduct the cost of your computer, you must use it at least 50% for business.

Random

Advertising.

Charitable contributions.

Tax preparation fees (only for the part of your tax return related to your business).

For these, use Schedule A and Schedule C.

QBID Can Save You Money

Another recent change is the qualified business income deduction, or QBID for short.

If you report your income as a sole proprietorship (which many independent agents do), you could be entitled to a deduction of up to 20% of qualified business income.

Ultimately, you’re going to pay less income tax because of this deduction.

The Biggest Expenses

It’s not always easy to remember to keep receipts for every purchase.

For those just getting started or are not great at keeping track of your expenses, at least deduct some of the biggest business expenses you have:

Office/Building rent or home office space: If you have a physical office, the rent is deductible, and if you work from home, your workspace is deductible, as are utilities such as phone bill and internet.

Advertising: Everything from Facebook ads to business cards is tax-deductible.

Continuing education and training: Your state licenses, non-resident license fee and continuing ed classes are all tax deductible.

Travel: If you travel to your clients or conduct any business, these costs are tax deductible. Your vehicle, flights, hotel, and even parking costs are all deductible.

Software: CRM, scheduling system, and website maintenance costs are all tax deductible. These can be some of the biggest expenses for independent agents, so don’t forget them.

Next Year

Now’s the time to plan on how you’re going to keep track of your receipts now for next year’s tax season, but it can be a huge pain.

A lot of self-employed workers swear by free apps which keeps track of your receipts.

You simply take a picture of the receipt, and you can save it to your Google Drive, the Cloud, or whatever application works the best for you.

This can be a pain-free way to make sure you get the most money back on your taxes.

Also, consider using services that automate your deductions, tracking mileage or an automated business expense reporting program.

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Lloyd Lofton is the founder of Power Behind the Sales and the author of “The Saleshero’s Guide To Handling Objections.”

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