If you are an insurance agent, you understand that there are a lot of challenges that come with running your own business. One of the biggest challenges is managing your overhead expenses. You spend a lot of money keeping your agency operational, and you might be looking for ways to reduce your overhead expenses. That could include your tax burden.
As a small business owner, there are plenty of tax deductions you may be able to claim. There are several common examples below, but keep in mind that every small business is different. Many of these tax deductions will apply to all small business owners, but you should always reach out to a professional tax accountant, such as a CPA before you start claiming deductions. That way, you save money on your taxes, and you keep yourself out of the crosshairs of the IRS.
1. Your Marketing Budget
One of your biggest tax deductions could be your marketing budget. The cost of advertising and promoting your business is generally tax-deductible. There are plenty of marketing examples you might use as an insurance agent. They include:
- You might hire someone to design and launch a website for you.
- You may spend money running a PPC campaign online.
- You may decide to design your own logo for your insurance agency.
- You may create new business cards that you can send to current and potential clients.
- You might hire someone to run a social media marketing campaign for you.
- You may purchase advertising space on a local radio station or in a local newspaper.
If you spend money marketing your insurance business, that money could be tax-deductible.
2. Your Business Insurance
If you purchase insurance for your business, that cost is generally tax deductible. Your business is one of your most valuable assets, and you must make sure you protect it. There are different types of insurance policies you may purchase for your company. A few examples of insurance policies that could be tax-deductible include:
- Property insurance that protects your equipment, building, and furniture
- Liability insurance for your business that could protect you against a potential lawsuit
- Insurance policies that you purchased for your employees, such as vision insurance, dental insurance, and health insurance
- Workers’ compensation coverage for your business
- Any auto insurance policies you have on your business vehicles
- Business Interruption insurance that may cover any potential disruption in your revenue or profits
There are different types of insurance policies that you may decide to purchase for your business. As long as you can tie them to your business, they should be tax-deductible.
3. Your Business Vehicle Use
Do you have a vehicle that you strictly use for work purposes? If so, you may be able to deduct the entire cost of operating that vehicle as a business expense. Not every insurance agent has a vehicle that they used solely for business use, but you may be able to save some money on your taxes as long as you are willing to track the number of miles that you drive.
In general, there are two ways you can claim a tax deduction stemming from the business use of your vehicle. The first is the standard mileage rate. Essentially, you will track all of the miles you drive for business purposes over the course of the year. Then, you will multiply it by a set number. The number changes from year to year, so it is important for you to track the standard deduction from year to year. In general, it falls somewhere between $0.55 and $0.60 per mile.
Instead of claiming the standard mileage rate above, the second option is to track (and deduct) your actual commercial vehicle expenses. Even though it may be harder, it could provide you with a larger tax deduction. Some of the expenses related to owning and operating a commercial vehicle include lease payments, registration fees, car insurance, tires, car repairs, gas money, and oil changes. Be sure to do the math for both methods. Then, claim the one that helps you save more money on your taxes.
4. Your Contract Labor
If you hire a freelancer or independent contractor to help you with your business, you may be able to write those expenses off on your taxes. Keep in mind that if you pay an independent contractor more than $600 during a single year, you are required to send them a Form-1099.
As an insurance agent, there are numerous reasons why you might hire an independent contractor to help you. If there is a problem with one of your utilities, you might need to hire a plumber or an electrician. Or, if there is a problem with your roof, you might need to hire a roofing company to help you. These costs could be tax-deductible.
In addition to property issues, you may hire freelancers or independent contractors to help you with marketing. If you hire someone to run your blog, design a website, or help you run a social media marketing campaign, these are examples of freelancers and independent contractors. The money you pay them could be deductible from your taxes.
Of note, if you hire a professional accountant to help you do your business taxes, their costs should be tax-deductible as well.
5. Your Continuing Education Expenses
It is important for you to keep your skills sharp, so you may invest in some continuing education classes. If that is the case, those expenses will be tax-deductible. A few examples of continuing education expenses that could be beneficial for you as an insurance agent include:
- The cost of renewing your state license
- Expenses related to classes you might take on specific topics, such as life insurance, car insurance, or property insurance
- The cost of maintaining professional certifications or board licenses
- Any subscriptions to professional journals
- Materials you use to study for licensing and renewal exams
As long as the educational expenses directly relate to your job as an insurance agent, you should be able to claim it as a tax deduction. If you have questions about what qualifies or what does not, you may want to reach out to an accountant who can help you.
6. Your Work Travel
As an insurance agent, you may not have to travel very much; however, if you have to go to the headquarters of a company whose policies you sell, or if you are attending a professional conference, you may be able to deduct the cost of your work travel. In general, half of your expenses related to meals and entertainment for business purposes are tax-deductible, but other travel expenses might be entirely deductible.
A few examples of travel expenses you might be able to claim as a tax deduction include:
- Plane flights
- Baggage fees
- Taxis and Transportation
- Hotel expenses
Remember that you will have to keep receipts to justify the expenses. If you spend an outrageous amount of money, the IRS may ask you for proof.
7. Your Real Estate Expenses
There are plenty of expenses related to business real estate that could be tax deductible. Regardless of whether you rent your property or own it, there are several major expenses that you may be able to claim as a deduction on your taxes. As always, the expenses will vary depending on your business arrangement.
For example, if you work in an office in your home, you may qualify for a home office deduction. There are multiple ways you can claim a home office deduction, ranging from a standard deduction to an itemized list of deductions. The standard deduction for your home office is directly related to the square footage of your home office. If you decide to claim an itemized list of home office expenses, you might include your internet costs, electricity, water, and the cost of office equipment. Common examples include your desk, computer, desk chair, and general office supplies.
If you rent office space in a commercial strip mall, there are other expenses you might be able to claim. For example, the cost of your equipment, furniture, and the rental lease could be deductible from your taxes.
If you have purchased a separate building for your insurance agency, there are plenty of expenses you can claim. The cost of repairing the business (such as paint, floors, and plumbing issues) and all of your utility costs should be tax-deductible.
Claiming tax deductions based on real estate can get complicated. Every insurance agent is in a slightly different situation, which is why you should always consider reaching out to an accountant who can help you.
Contact the American Agents Alliance for More Resources
Nobody should have to spend more money on taxes than they are legally required to. We are the American Agents Alliance, and we have plenty of resources that can benefit insurance agents. Contact us today to speak to a member of our team.