It's not just about expertise when it comes to filing taxes; it's also about knowing what you don't know. Unfortunately, many taxpayers are unaware of available deductions and credits. Health and medical expenses, as well as insurance premiums, are among the most frequently missed deductions. However, in the United States, many deductions were abolished as part of the 2017 Tax Cuts and Jobs Act (TCJA), although most of the ones described below were not.
1. Insurance for Disability
The most prevalent sort of premium that isn't taken into account as a tax deduction is disability insurance. If you're disabled and unable to work, this form of insurance can help supplement your income. These premiums, however, have difficult and limited deductibility.
Self-employed taxpayers can deduct "overhead insurance that covers for business overhead expenses you have during long periods of disability caused by your injury or illness," according to the Internal Revenue Service (IRS). But note, however, that premiums for a policy that compensates for lost wages due to illness or incapacity cannot be deducted."
Disability insurance that covers business overhead expenses while you're on leave is the only type that can be deducted. This form of insurance would pay for unavoidable expenses like rent and utilities while on disability leave.
2. Savings Account for Medical Expenses
A Health Savings Account (HSA), which combines a tax-advantaged savings element with a high-deductible health insurance policy, is another insurance-related tax incentive that consumers without access to standard group health coverage should be aware of.
Even if you don't itemize on Schedule C, you can deduct all of your HSA contributions up to the maximum amount allowed by law. If you have a single coverage plan, you can contribute up to $3,650 (against $3,600 in 2021), and if you have a family plan, you can contribute up to $7,300 (versus $7,200 in 2021), with an additional $1,000 contribution allowed for taxpayers over 55.67.
3. Expenses for Medical Care
Medical expenses are deductible up to a specified percentage of the taxpayer's adjusted gross income (AGI). As a result of numerous laws, this percentage fluctuates.
If you have a lot of medical bills, you can increase your deductible by scheduling other medical procedures or expenses during the same year.
4. Worker's Compensation/Unemployment Insurance
It's vital to distinguish between state unemployment compensation and workers' compensation, which is provided to employees who are unable to perform their jobs due to an injury.
As a replacement for normal earned income, unemployment payments are always taxed.
5. Self-Employed Deductions
Business-related insurance premiums, such as health and dental insurance premiums, and long-term care premiums, can be deducted by self-employed taxpayers and other business organizations.
If the taxpayer reports real expenses rather than using the normal mileage rate, vehicle insurance can also be deducted.
6. Other Plans that Qualify
Small business owners who want to catch up on their retirement savings and obtain a guaranteed income stream in the future can take advantage of these defined-benefit plans, which can give significant tax benefits.
7. Is it possible to deduct life insurance premiums?
If something were to happen to you, life insurance could help create a sense of security for your family. If you're wondering if you can deduct life insurance premiums from your taxes, the answer is usually no. Premiums, on the other hand, can be written off as a business expense as long as the insured is an employee or a corporate officer of the company, and if the company is not a direct or indirect beneficiary of the policy.
Although death benefits for business-related beneficiaries are frequently tax-free, corporate-owned life insurance death payments may be taxed in some circumstances. Employers who provide group term life insurance to their employees, on the other hand, can deduct premiums paid on the first $50,000 in benefits per employee, and amounts up to this maximum are not treated as income.
These are just a handful of the sometimes ignored insurance-related tax deductions and benefits available to businesses and individuals. The IRS website lists other deductions related to compensation, production, and building and equipment depreciation. You can find out the tax deductions you qualify for by speaking with your accountant or another tax specialist