Insurance-based tax deductions you should know about
Insurance-based tax deductions — especially ones related to health costs and self-employment — can be a good way to lower your tax bill. As you gather information for your next tax filing, be sure to review these deductions to see if you qualify.
Deductions related to health insurance
Most insurance-related tax deductions have to do with health spending. Here are a few of the most common ones to keep in mind for tax time.
Marketplace premiums: Do you buy your health insurance on a federal or state marketplace? Depending on your income level, you may qualify for the advance premium tax credit to help cover your premium payments. According to U.S. News & World Report contributor Kimberly Lankford, this can either be applied to the cost of the premium or as a tax refund.
Medical expense deduction: If your annual health spending reaches 7.5% of your adjusted gross income, you can claim any costs that surpass that threshold as an itemized tax deduction. Qualified costs include health insurance premiums, long-term care insurance premiums, out-of-pocket medical bills, and much more. However, Lankford notes that premiums for employer-provided health insurance can only be claimed if they’re withdrawn from your paycheck on a post-tax basis.
Health savings accounts: Health savings accounts, or HSAs, are often offered by employers in conjunction with high-deductible insurance plans. You can withdraw this money tax-free to pay for a wide range of medical costs. Health insurance premiums typically aren’t considered eligible spending, but Lankford points out a couple of key exceptions. You can sometimes use tax-free HSA money to pay for health insurance premiums while you’re unemployed. And if you’re 65 or older, you and your spouse can pay for Medicare Part B, Part D, and Advantage premiums with tax-free HSA funds.
Insurance deductions for the self-employed
If you’re self-employed, you can deduct several types of insurance from your taxes. These are some of the possibilities you might be able to take advantage of.
Health insurance: If you’re self-employed, you might be able to claim a tax deduction for you and your family’s health, dental, and long-term care insurance premiums. To qualify for this deduction, you must meet the IRS’s definition for self-employment, and your business typically must report a net profit for the year. You also can’t be eligible for employer-based coverage (through a spouse or partner, for example).
Car insurance: Writing for Investopedia, Mark Cullen notes that you can deduct car insurance if you’re self-employed and use your vehicle for business purposes. However, if you do this, you’ll need to itemize all qualifying expenses rather than using the IRS’s standard mileage rate.
Disability insurance: If you’re self-employed, Cullen states that you can deduct premiums for insurance that pays for your business overhead if you’re unable to work due to sickness or injury. However, you’re not allowed to deduct insurance that replaces your earnings.
To learn more about these and other insurance-based tax deductions, speak with a qualified tax professional. In the process, you might discover new ways to lighten your tax bill in the coming year.
The information in this article was obtained from various sources not associated with Adirondack Bank. While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. Adirondack Bank is not responsible for, and does not endorse or approve, either implicitly or explicitly, the information provided or the content of any third-party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. Adirondack Bank makes no guarantees of results from use of this information.
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Source: IMakeNews, Inc.
