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The Tax Cuts and Jobs Act of 2017 almost doubled the standard deduction for most individuals and families. For this reason, many people have become less concerned with itemized deductions, since their total would not surpass this threshold.
If you are in a scenario where it is close, then you are probably looking at every avenue for reducing your taxable income. There are myriad personal tax deductions a lot of people are unaware of, such as premiums on different types of insurance plans.
The information below will lay out the different types of insurance that can be used as deductions, and the circumstances that permit it. Keep reading to find out how you can optimize your tax return.
What Is a Tax Deduction?
A tax deduction is an expense that the government allows you to subtract from your taxable income. Some of the most common ones are mortgage interest, state and local taxes, and unreimbursed medical expenses. You can take deductions for charitable donations and, if you are self-employed, some business expenses.
To claim personal tax deductions, you must itemize them and be able to show proof of the expense. If these amounts total more than what you would get with the standard deduction, then it is financially advantageous to do so.
Health Insurance Deductions
There are different scenarios where you can claim health insurance premiums on your federal taxes. In general, if you get your health insurance through your employer, you cannot. That is because the premium is deducted from your pre-tax wages or salary.
If you pay your health insurance premiums directly, then you likely can deduct them from your taxable income. This includes premiums for COBRA insurance, which allows people to continue their employer-based insurance for a time after they have left a job. Premiums for Medicare Parts B, C, and D, and Medigap, are tax-deductible as well.
In general, life insurance premiums are not tax-deductible. There are some exceptions.
One is if they are a business expense. For instance, companies or organizations that offer group life insurance for employees can deduct premiums. (Note that the company that offers the plan cannot be a direct beneficiary of the death benefits for it to remain deductible.)
There also are a number of online resources to help you further your tax deduction education, like those at Paradigm Life. See the episode about whole life policies to drill down on the advantages you can access.
Disability insurance may be one of the most overlooked tax deductions out there. That may be in part due to the complexity of the issue.
You can deduct disability insurance that covers business expenses, like rent and utilities, that are unavoidable even if you are out on leave. There is a catch here, though.
If you deduct the premium, then the proceeds from the policy will be classified as taxable income. If you do not deduct the premium, then what is paid out will not count towards your taxable income.
Learn More About Personal Tax Deductions and the Insurance Industry
Now that you have an idea of the types of personal tax deductions available for insurance plans, you can be more informed in selecting one that is right for you.
We hope you found this information about the financial industry helpful. If so, be sure to take a look at some of our other personal finances posts, as well as those on business, investment, and many other topics.