Maximize Your Insurance-Based Tax Breaks

It's easy to overlook valuable tax deductions tied to your insurance, but understanding these deductions can lead to significant savings and improved financial health, especially during tax season. Insurance premiums and medical-related expenses may offer surprising opportunities for deductions if managed correctly.

Health Savings Accounts (HSAs)

Contributions to a Health Savings Account (HSA) are tax-deductible, even for those who don't itemize deductions. These accounts offer a triple tax benefit:

• Contributions are deductible.
• The account grows tax-deferred.
• Withdrawals for qualified medical expenses are tax-free.

Medical Expenses

Unreimbursed medical costs exceeding 7.5% of adjusted gross income (AGI) may be deductible. Examples of deductible expenses include:

• Treatments
• Prescriptions
• Medical travel

For instance, if you experience a year of unexpected medical costs, you might qualify for this deduction.

Deductions for the Self-Employed

Self-employed individuals can benefit significantly from insurance-related tax deductions. Here's what's deductible:

• Premiums for health, dental, and long-term care insurance.
• Business-related insurance, like vehicle insurance for work purposes.

Take, for example, a freelance graphic designer who uses their car to visit clients and attends dental treatments not covered by personal insurance.

Disability Insurance

Self-employed individuals can deduct disability insurance premiums if the policy covers business overhead expenses. It's important to note:

• Personal disability insurance doesn't qualify for this deduction.

Consider, for example, a self-employed consultant whose policy covers the rent of their office space in the event of a disability.

Unemployment and Workers’ Compensation

While unemployment benefits are taxable, workers’ compensation benefits generally aren’t. It's crucial for individuals to accurately report these to avoid discrepancies.

Qualified Life Insurance

Life insurance premiums are usually not deductible unless for business purposes. To qualify as a deduction:

• The policyholder must be an employee or corporate officer.
• The business cannot be the beneficiary.

For example, a small business might qualify if it has a policy on a key employee, with the family as the beneficiary, not the business.

Maximizing insurance-based tax deductions requires awareness and careful documentation. Take a closer look at your insurance expenses and consult a tax professional to ensure you're leveraging all available deductions.

Have questions about your insurance coverage? Reach out today for policies that protect you and those you love.