Tax deductions can be confusing, but it’s important to get them right. Insurance premiums and claims may affect your taxable income. You may be able to deduct all or some of your renters, home, or auto insurance premiums and deductibles. Conversely, payouts from an auto, home, or life insurance policy may count as taxable income.
Deducting Auto Insurance
Do you use your car for business, beyond simply driving to and from work? If your employer does not pay or reimburse your insurance, you can write off some or all of your auto insurance costs. Just remember, the IRS doesn’t view your daily commute as a business expense.
How to Calculate Cost
If a vehicle is only used for business, you can deduct the entire cost of insuring that vehicle. Otherwise, estimate the percentage of time that you drove the car for business. Add the total cost of your premium and deductible payments for the year, divide the sum by this percentage, and you’ll get the amount you can deduct from your taxes.
Keep Mileage Records
If you get audited, the IRS may ask you to show mileage records. Note your car mileage on the first day of the year. You may want to keep a notebook in your car and jot down business miles to back up your deductions. You can also use a mileage tracker to stay organized.
What Counts as Driving for “Business”
Any work that you do, whether for an employer, as an independent contractor, or as an entrepreneur, counts as business. If you manage rental property, count the miles you drove back and forth to your property.
Claiming Auto Insurance Payouts
Did you receive a check from an auto insurance company this year? Insurance payments to repair or replace a damaged automobile are not considered income, but these payments come into play when you sell your vehicle. If your car sells for less than the insurance payout, you have to pay capital gains tax on the difference.
Personal injury payments are not taxable. If you claim out-of-pocket medical expenses that an insurance company later reimburses you for, you need to file a tax adjustment.
Deducting Renters or Home Insurance
If you deduct a percentage of your mortgage or rent for a home office, you can deduct the same percentage of the total cost of your renters or home insurance.
You can deduct home insurance costs as a business expense if you are a landlord. Do you rent out an entire house or structure, such as a detached mother-in-law apartment? You can deduct 100 percent of these insurance premiums. If you collect rent on a single bedroom, you can deduct the percentage of the insurance costs that corresponds to the percentage of the house you rent out.
Claiming Home & Renters Insurance Payouts
Generally home and renters insurance claim checks are not considered taxable income. If your payout exceeds the current or adjusted market value of the damaged property, you will have to pay capital gains tax on the excess.
Life Insurance & Taxes
Life Insurance premiums are not tax deductible, nor do you have to pay taxes as the beneficiary of a lump-sum life insurance payout. If the policyholder elected to have the policy paid in smaller sums over time, any interest earned during the holding period is taxable income.
Do you have questions about how your insurance policies with Louisiana Farm Bureau insurance affect your tax return? Find a local agent for help.