The tax man cometh and he’s headed for your wallet. Itemize your tax return and take full advantage of all legitimate income tax deductions that you’re entitled to, including insurance deductions. Deductions help lower your gross taxable income – the amount of money you pay taxes on. That leaves more money in your pocket to spend or invest the way you want. But how to maximize insurance tax deductions?
Since our interest here is to maximize insurance tax deductions, we’ll touch generally on what insurance expenses you can and can’t deduct. For more in-depth information see our articles on health care insurance tax deductions and small business insurance tax deductions elsewhere in our journal. Please keep in mind that this is general information, not tax advice. For that you need to see a professional or the IRS.
Tax Deductions for Health Care Insurance and Dental Insurance
If your employer pays for your medical and/or dental insurance, any portion you contribute to the premium is NOT a tax deduction. Here’s why. Your contributions to your group plan were paid with pre-tax dollars and the value of your employer’s contribution is not counted as income on your W-2. Some people would like to change this, but for your 2010 return, all you need to know is that you can’t deduct your portion.
If you are self-employed you can deduct your health care and dental insurance as 100% above-the-line expense. That means whatever you paid can be subtracted from your gross income. You may also be able to include premiums paid for your spouse and dependants if these people aren’t covered by any other health insurance plan, such as employer-provided.
Health Savings Accounts Tax Deductions
Assuming you are covered by a qualified high-deductible plan and not covered by any other health insurance, you can still deduct any contributions for premiums and out-of-pocket expenses you made to your HSA as an above-the-line expense on your 2010 tax return (up to the allowable maximum). According to the website, HSA.com, there are no changes in contribution limits in 2011 to date.
Long-Term Care Insurance Tax Deductions
Premiums for eligible long-term care insurance policies are tax-deductible. The allowable limit for 2010 will depend on your age as of December 31, 2010. Consult with your tax preparer to see if you qualify.
Car Insurance Tax Deductions
You cannot take a tax deduction for car insurance on your personal policy. But car insurance for a vehicle used for business can be deducted if you opt to deduct actual auto expenses (gas, depreciation, garaging, parking, maintenance, etc.), but not if you take the standard mileage deduction. You have to choose one track or the other and stick with as long as you own the vehicle in question.
Homeowners Insurance Tax Deductions
Unless you operate a business from your home, your homeowners insurance is not tax deductible. If you have a home business, your homeowners insurance (and any riders required for your business) can be declared as tax deductions in 2010. The same holds true for renters insurance policies and 2010 tax deductions.
Life Insurance Tax Deductions
Life insurance premiums are not tax deductible.