Note: This article has been updated from previous tax years. Notable 2019/2020 updates include an increase to the standard mileage rate and the introduction of QBID. Disclaimer: We are not tax professionals. Please consult with your accountant or CPA for tax advice.
It’s tax season again, and we’ve put together a full tax deductions checklist specifically for independent insurance agents.
There are a couple things to go over before we get into the checklist:
- Get a professional to help you
- Understand what counts as a deduction
Get a professional to help you
If you run your own show, it’s important that you use the help of professional. The saying goes that hiring a CPA (Certified Public Accountant) to do your taxes can pay for itself, because they find every possible deduction for you, not to mention making sure you have all your i’s and t’s dotted and crossed.
CPAs are licensed by the state, and in order to keep a license, they have to keep up with current tax laws. Regular accountants aren’t licensed. You can read more about why CPAs are helpful here.
If you don’t already have a CPA, you can always do some online searching, but call several offices to get a feel for your options.
When it comes to finding deductions, it’s your job to keep track of receipts and expenses. A CPA can help you pinpoint deductions, but if you don’t have documentation to back it up, you can’t claim them.
What counts as a deduction?
According to the Business Expenses document put out by the IRS (Publication 535), your business expenses must be ordinary and necessary in order to be deducted from your taxes.
An ordinary expense is a common or accepted expense in your industry. A necessary expense is one that’s helpful and appropriate for your business.
Secondly, anything you use for both home and business must be divided up into accurate percentages. For example, let’s say you have a home office that’s 200 square feet. If your entire home is 2,000 square feet, you can only deduct 10% of your mortgage payments, insurance, utilities, repairs, and so on.
All of the information found in the following checklist is taken from Publication 535. The checklist makes it easy to see a full overview of what you can deduct, but if you need more specifics on something, feel free to open that document, search for your keyword, and you’ll be able to find it quickly.
Tax Deductions for Insurance Agents
- Mileage driven → MileIQ can make this easy
- Parking fees
- Registration fees
Note: Use Schedule C and Form 2106. The standard mileage rate as of 2019 has gone up slightly to 58 cents per mile. Beginning on January 1, 2020, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be 57.5 cents per mile.
- State licenses
- Subscriptions to professional, technical, and trade journals that deal with your business field
Note: Use Schedule A. Any education that qualifies you for a new career won’t count — only continuing education will.
- Health insurance
- Long-term care insurance
- Dental insurance
- Business insurance
- Part of your homeowner’s insurance
- Vehicle insurance
Note: Use Schedule A, Form 2106 and Form 1040. 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 it based on the square footage of your home office.
- Meals and entertainment
- Baggage fees
Note: Use Form 2106. Half of the meals and entertainment tab can be deducted for business-related meals and entertainment. You must keep receipts, a note of who was entertained, and what the purpose of the meeting was. Note that if the meal is lavish or outrageously expensive, it will not count as a valid deduction.
- Home office
- Telephone service, but only for long-distance calls or a second line (the first line is not deductible)
- Office desk
- Reconditioning floors
- Repainting the interior or exterior walls
- Cleaning and repairing roofs and gutters
- Fixing plumbing leaks
Note: Use Form 8829, Schedule C, and Schedule A. For these deductions, you must divide the office space square footage by the square footage of the entire residence. Once you figure the percentage of your home that is solely for your business, you can calculate the deductions above.
Office Supplies and Equipment
- Paper clips
- Postage stamps
- Presentation folders
- Copying costs
- Overnight deliveries
- Internet fees
- Greeting cards
Note: Use Schedule C. Your computer must be used at least 50% for business.
- Charitable contributions
- Tax preparation fees (only for the part of your tax return related to your business)
QBID Can Save Agents Money at Tax Time
Another big change since our last rendition of this article is in introduction of the Qualified Business Income Deduction, or QBID for short (read the full explanation at irs.gov).
In sum, if you report your income as a sole proprietorship (which many independent agents do), you might 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.
You can read a lot more about QBID, plus an example scenario of how much you could save on taxes, here: New 2018 Tax Bill Is Saving Independent Insurance Agents a Lot of Cash
How to Keep Track of Your Tax Deductions
It’s a good idea to start keeping 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 the free app Evernote Scannable, 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.