Whether you're a captive agent or an independent insurance producer, there are lots of deductions you may be eligible to use to lower your federal and state income tax levels. The key is to keep detailed records throughout the year, not only to jog your memory as to what to deduct, but also to prove your deductions, in case you should be audited.* Here is a list of tax tips for insurance agents that we've compiled from various sources. 

If you're new to the insurance industry, you may have a question as to whether you're a captive agent (an employee, receiving a W-2 form) or self-employed (filing a 1099 form). You may fall somewhere in the middle, receiving a W-2 from your employer plus 1099s from other companies that you represent. Just remember - any 1099 you receive means that absolutely no income taxes or FICA (Social Security and Medicare) have been withheld, so you will need to "square up" at tax time, paying any additional amounts that you didn't pay on a quarterly basis. 

Related: Last-minute 2016 tax tips

We're close to tax time, so check your returns before you file them to ensure that you've taken advantage of these deductions. We've added a few extra "don't forget" pointers and tax tips for insurance agents, for items that are easily overlooked.

  • Licensing and continuing education. State licenses and renewals are tax deductible as long as you're already an agent. Any continuing education (CE) courses required to maintain your license or appointments to sell as an insurance producer can be deducted on Schedule A, itemized deductions. Generally you can't deduct any education costs required to qualify you for a new career, which means you may not be able to deduct the cost of your insurance license preparation test if you just joined the insurance industry. But you can deduct the costs of required suitability and compliance classes and certifications such as the Chartered Property Casualty Underwriter or Certified Life Underwriter.
    • Don't forget: costs for subscriptions and books
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  • Car allowance. Here your continuous record-keeping is crucial. Keep a log of any unreimbursed mileage for business purposes, including distances driven and purpose (excluding miles driven to/from your office from home, of course). Unfortunately, IRS reduced the allotted mileage rates in 2016 (probably due to lowered gas prices) to 54 cents, down from 57.5 cents in 2015. You also have the option of, rather than keeping that meticulous driving log, claiming actual auto expenses: the total you spent on your vehicle, including depreciation, times the percentage of business use. It's safer to keep a mileage log with either option, but if you know your records aren't complete, you may opt for the actual expenses. Just know that you can't switch back and forth from year to with the same vehicle.
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  • Travel. If you attend a seminar, see a client at a distance or pay for your own way to a home office meeting you can deduct the cost of travel to the destination. The cost of other transportation such as taxis from the airport or shuttle service to the hotel is also deductible. Hotels and tips are also deductible, but you know the drill: you must have the receipts.
    • Don't forget: those extra baggage fees when you fly
     
  • Meals and entertainment. Generally, whenever you meet a client, prospect or business associate at a restaurant or cafe for business purposes, you can deduct half the tab from your income. Any lavish expenses will raise red flags, so don't try to use them; and the event or meal must be directly related to business purposes. You must also discuss business with the other parties during the meal or event, with a specific reason to believe in a favorable business outcome. Keep receipts; jot down the type of person entertained (client/prospect/other) and brief description of the purpose.
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  • Home office. If your home office is dedicated exclusively for business use, divide the office square footage by the square footage of the entire residence. This is the amount of your rent, utilities and mortgage payments you can claim as a home office deduction. (Note: you can claim your dining room, but ironically you have to deduct the square footage of your dining room table from the total dining room square footage. Strange, I agree, because that table is your desk!) To claim this deduction, fill out IRS Form 8829, Expenses for Business Use of Your Home, and fill out a Schedule C, Profit or Loss from Business, and a Schedule A, Itemized Deductions.
    • Don't forget: Do you rent your office space/desk? Those fees are deductible.
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  • Computer. If your computer is used at least 50 percent for business, you can deduct the computer, printer, scanner and other ancillary equipment plus paper, ink, software and maintenance. If it's a home computer used less than 50 percent, you can depreciate and deduct the computer and printer over five years. A percentage of the ink, paper and consumables are deductible.
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  • Supplies. Some deductible supplies were mentioned above, but don't forget about any others that you typically consume in a year, from paper clips to postage stamps and presentation folders.
    • Don't forget: copying costs, overnight deliveries, stationery, Docusign, internet fees, greeting cards
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  • Cell phone. If your personal cell phone is used for additional purposes other than business, sorry, you're out of luck. The IRS no longer allows this option, my tax preparer told me. However, if the cell phone is exclusively for your work, it's deductible, as is a landline in your office (NOT your home landline, unless its use is exclusively business-related).
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  • Marketing and advertising. Any unreimbursed marketing expenses, from business cards to other print materials, and from business gifts to ads in local publications, are deductible. Don't forget to include any updates or upgrades you've made to your website or social media sites, if you paid someone to do those for you.
    • Don't forget: signage, newsletter costs, Yellow Pages, purchased customer lists, promotional items, website hosting
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  • Business gifts. Let's delve a little deeper here for possible deductions and tax tips for insurance agents. The IRS says if you give business gifts in the course of your business, you can deduct all or part of the costs subject to the following limitations:
    • You deduct no more than $25 of the cost of business gifts you give directly or indirectly to each person during your tax year.
    • Incidental costs such as engraving, packing or shipping are not included in the $25 limit if they don't add substantial value.
    • Gifts costing $4.00 or less that have your business name permanently engraved on the item and which you distribute on a regular basis, are not subject to the $25 limit.
    • Keep records that prove the business purpose of the gift as well as the details of the amount spent.
    • Don't forget: client referral fees
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  • Legal and Professional Services: Deduct fees paid to attorneys, accountants, consultants, and other professionals if the fees are paid for work related to your business.
    • Don't forget: tax preparation fees
       
  • Memberships. Whether it's a membership in your local Chamber or business association, or it's an industry or professional organization, these unreimbursed memberships are deductible.
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  • Insurance: Insurance you buy just for your business is deductible—for example, business liability insurance or E&O. If you have a home office, you may deduct a portion of your homeowners insurance. Self-employed people are also allowed to deduct 100% of their health insurance premiums from their income taxes.
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  • Charitable donations. These are deductible; just be sure to get a receipt.

Related: Year-end tax strategies for insurance producers

It's not too late to take advantage of every deductible that's allowed to you, whether you're a captive agent or an independent broker. Share this checklist of tax tips for insurance agents with your colleagues, too!

 

*PLEASE NOTE: We are neither accountants nor tax attorneys; consult your tax advisor with any questions you may have.