When tax preparation time comes there can be an array of questions about federal tax deductions and what to report as income on your federal tax return. This Insurance Tax Dos and Don’ts list of federal tax tips will hopefully help many with federal tax questions regarding insurance whether on a personal or business level.
Although some of the federal tax preparation points below may be confusing if one is not familiar with the federal tax laws, this list will still be very beneficial to even those who use a tax preparer. Just print out the list below and give it to your tax preparer to make sure they don’t forget any deductions you may have coming on your tax return.
1. Do remember to include insurance as a deduction for your vehicle on your federal tax return: If one uses their car for business purposes and chooses to deduct their actual expenses instead of their mileage (only one can be chosen), besides deducting depreciation, gas, oil, tires, licenses, repairs and the related, the insurance premiums may also be deductible. Remember, if one chooses to take the actual expenses deduction instead of the mileage deduction they cannot choose the mileage deduction in later returns.
2. Do deduct your health and long-term care insurance premiums on your federal tax return: A self-employed person may be able to deduct 100% of health and long-term medical costs for themselves, their spouse, and their dependants. When doing your tax preparation be aware that this deduction is taken as an adjustment to income and it can only be taken if the self-employed person or spouse are not covered by an employer health insurance plan.
3. Do see if you qualify to deduct medical expenses on your federal tax return: Depending on one’s income, certain medical expenses including health insurance and dental insurance premiums along with some amounts paid for long-term care insurance contracts may be deductible. This deduction is limited to costs over 7.5% of one’s income.
4. Do plan your medical procedures and expenses for the maximum deduction: Since certain medical expenses are limited to costs over 7.5% of one’s income, when doing your tax preparation don’t forget to schedule and pay for procedures before December 31 of the tax year the deduction is desired may be beneficial to certain persons.
5. Do find out if you have any miscellaneous insurance expenses that can be deducted on your federal tax return: Various miscellaneous expenses may be deductable on your federal tax return for some persons but are subject to amounts over 2% of one’s adjusted gross income. Insurance related miscellaneous expenses may include unreimbursed employee malpractice insurance and liability insurance premiums, appraisal fees for casualty losses not reimbursed by insurance, safe deposit box rentals to store investment papers such as insurance annuities. The remaining unrecovered investment in an insurance annuity may be deducted from a retiree’s tax return if they are deceased before the entire investment is recovered.
6. Do see if you can deduct any job-related moving storage expenses: Some persons may be able to deduct certain moving expenses including the cost of storing and insuring household goods and personal items. The deduction is only eligible during any 30 consecutive days after the items are moved from the previous home and before they are delivered to the new home.
7. Do check your previous federal tax returns for the above insurance deductions: Federal tax returns can be amended for up to three years so if one feels they had qualifying deductions on previous federal tax returns that they did not claim, they may be able to amend the return to include the deduction and receive any refund if applicable. Additional copies of previous year’s tax returns can be purchased from the IRS.
8. Don’t forget to report unemployment insurance benefits: It is important to remember that unemployment insurance compensation is considered taxable income so one must report any state or federal unemployment insurance benefits they received during the tax year they are filing for.
9. Don’t report casualty and theft losses reimbursed by insurance: Damages from losses due to perils on your home such as floods and tornadoes, and losses due to damage to one’s automobile may be deductible if one itemizes deductions. The losses need to be reduced first by any insurance amount received + $100 and then the loss must furthermore be reduced by 10% of one’s adjusted gross income.
10. Don’t report worker’s compensation insurance benefits as income: Worker’s compensation along with child support payments, military allowances, veteran’s benefits, welfare benefits and cash rebates from a car purchase are not considered taxable income.
Stay Tuned for more Tax Tips! – AL Grant
Al Grant Realty Group – Re/Max Allegiance
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