As you wrap up another busy year you don’t want to lose sight of keeping track of your expenses and any eligible tax deductions because tax season will be here before you know it. Writing off your expenses allows you to lower your taxable income and put some money back in your pocket.
Work With a Tax Professional
While you may be an expert on Medicare, you’re probably not an expert in tax laws. Hiring a qualified professional like a licensed CPA will ensure you maximize all the deductions you qualify for while adhering to the tax laws in your state.
What the IRS Requires
According to the IRS, business expenses must be considered both “ordinary and necessary” and not regarded as a personal expense. Ordinary meaning a common or accepted expense in your industry. Necessary meaning one that is helpful and appropriate for your business. Anything used for both home and business, such as internet service if you work from home, must be divided up into accurate percentages.
The IRS says to keep records for your business tax deductions indicating what you bought, when you bought it and how much you spent. You can substantiate those expenses with any of the following documents:
- Canceled checks or proof of electronic fund transfer
- Cash register receipts
- Bank account statements
- Credit card receipts and statements
- Invoices
Keep your records for at least three years. If you are audited by the IRS, they can review records for the three years prior to the audit. If they find significant errors, they can go back up to six years.
Publication 535 is the IRS tax guidance document for small businesses and those who are self-employed. It covers what expenses can be deducted and which records to keep. The document is updated annually prior to each year’s tax season.
Top Deductions for Independent Insurance Agents
Mileage
If you use your car for both business and personal purposes, you may deduct only the cost of its use for business. Most people do this by using the standard mileage rate method which allows for a deduction of 67 cents for each business mile driven in 2024.
The best way to ensure you are consistently and accurately tracking your mileage is to use a mileage tracking system, so your tracking is done automatically. There are multiple mileage tracking apps available that also categorize the purpose of the trip and easily export a report for tax purposes. While most have a fee, they are a worthwhile expense since they ensure accuracy and eliminate the need to remember to track.
If you use your vehicle for business more than 50% of the time, you might want to consider using the actual expense method for deductions instead of the standard mileage method. This allows you to deduct other costs such as fuel, maintenance and repairs, depreciation on new vehicles and could result in larger deductions.
Licensing Fees & Continuing Education
This includes fees to get or renew your license and any courses or certifications needed to enhance your skills after your are licensed.
Computer Software
This includes software specific to your insurance agent duties such as your CRM, and any software used for scheduling, writing policies, managing your client list, and communicating with clients.
Home Office Space
This is the most closely monitored deduction by the IRS. You must have a dedicated space for work purposes only and regularly work from there. You must divide your office space square footage by the entire square footage of your home and use that percentage to calculate your deductions for a variety of expenses including your internet bill, utilities, and property insurance. You can also deduct the cost of home office furnishings such as a desk and chair.
Office Supplies
This includes any supplies your buy for your office, such as your computer, printer, scanner, ink, paper, pens, binders, folders, and even greeting cards for clients and postage. You must use your computer at least 50% of the time for business to claim this deduction.
Marketing Materials and Advertising
This includes business cards, post cards, flyers, and any print and online advertising to promote yourself and your business.
Tracking your expenses in an accurate and timely manner will help you maximize your deductions and save time when tax season rolls around. There are several business expense tracker apps on the market that can help you manage this efficiently.
Qualified Business Income Deduction
If you report your income as a sole proprietorship, you might be entitled take up to a 20% deduction on qualified business income. This deduction is known as the Qualified Business Income Deduction (QBID) . There are certain limitations based on the type of business operated and the amount of income. A tax professional can guide you as to whether or not you qualify for QBID.
The team at PTT financial is here to answer your questions. Our goal is your success! Contact us today.
