Make sure you’re getting the write-offs you’re entitled to
There are perks to being your own boss. And one of those perks comes in the form of tax deductions for your business expenses.
Remember—as we mentioned in a recent post—when it comes to business expenses, it’s important to:
- Only take the business deductions you’re entitled to
- Not mix personal and business expenses
- Ensure that your expenses are ordinary, necessary, and in pursuit of revenue for your business
Now that we’ve got that out of the way, here are the top 10 tax deductions that insurance agents can—and should—be taking.
1. Home Office
If you work from a home office, you may be able to deduct a portion of your home-related expenses, such as rent, mortgage interest, utilities, and property taxes. How does it work?
If you: 1. Use a portion of your home exclusively for business purposes, and 2. Use your home office as your principal place of business, you can deduct $5 per square foot of your home that is used for business purposes (up to a maximum of 300 square feet), OR you can determine the percentage of your home that is used for business purposes.
For the latter, measure the square footage of the area used for business and divide it by the total square footage of your home. For example, if your home office is 150 square feet and your home is 1,500 square feet, the business-use percentage is 10%.
Once you’ve calculated this percentage, you can deduct a portion of your home-related expenses, such as rent, mortgage interest, property taxes, utilities, and home repairs and maintenance. The amount of the deduction will be equal to the percentage of your home used for business purposes multiplied by the total amount of the eligible expenses.
2. Automobile Expenses
Similar to the home office deduction, if you use your personal vehicle for work-related purposes, you may be able to deduct a portion of your vehicle-related expenses too.
To calculate this deduction, you'll need to keep accurate records of your business-related mileage, as well as the total mileage for your vehicle. You can then either multiply the miles driven for business during the year by a standard mileage rate (in 2023, that’s $0.655 per mile) or you can use the business-related mileage to determine the percentage of your automobile expenses that are deductible.
For the latter, let’s say you drove a total of 10,000 miles during the year, and 6,000 of those miles were for business purposes. The percentage of your automobile expenses that are deductible would then be 60% (6,000 business miles divided by 10,000 total miles).
Once you’ve calculated the percentage, you can multiply it by the total automobile expenses incurred during the year to determine the amount of the deduction. Deductible expenses may include gas, oil changes, repairs, maintenance, insurance, registration fees, and depreciation. Therefore, if your total automobile expenses for the year were $5,000, and the percentage of deductible expenses was 60%, your automobile expense deduction would be $3,000.
3. Business Meals and Entertainment
If you meet with clients, customers, or potential customers over a meal or form of entertainment, you may be able to deduct 50% of the cost. Side note: meals for employees are 100% deductible.
To qualify for the deduction, the meals and entertainment expenses must be directly related to your business and must occur either before, during, or after a business discussion. The expenses must also be reasonable—i.e. not lavish or extravagant.
In addition, the meal or entertainment must take place in a business setting, such as a restaurant, hotel, or office, or at a venue that’s conducive to business discussions. This means that expenses for entertainment that’s primarily for personal purposes, such as tickets to a sporting event, aren’t deductible.
To claim the deduction, you'll need to keep accurate records of the date, location, and purpose of the meal or form of entertainment, as well as the amount spent and the names and business relationship of the individuals involved. It's important to keep detailed records to support the deduction in case of an audit.
Recommended reading: How Insurance Agents Can Prevent an IRS Audit
4. Licenses and Certifications
Fees associated with maintaining or renewing your professional licenses or certifications required to perform your job—for example, your P&C and/or L&H Licenses—can also be deducted.
The types of expenses that are eligible may include fees for testing, application, registration, and renewal, as well as continuing education courses or seminars required to maintain the license or certification. Just keep in mind that there may be limitations, such as a cap on the total amount of professional fees that can be deducted.
To claim the deduction, you'll need to keep accurate records of the expenses, including any/all documentation (receipts, etc.). You may also need to provide evidence that the expenses are necessary in order to perform your job and/or maintain your professional status.
5. Advertising and Marketing
Expenses related to advertising and marketing your business are 100% deductible, as long as they’re not political. This can include print or online advertising, direct mail campaigns, website design, social media advertising, promotional events or sponsorships, public relations activities, business cards, brochures, and other promotional materials.
To qualify for the deduction, the advertising and marketing expenses must be ordinary and necessary for your business. It's also important to note that certain types of promotional expenses may be subject to limitations or disallowances.
Like with all the other deductions we’ve mentioned so far, in order to claim this one, you'll also need to keep accurate records of all related promotional expenses.
We’re Here to Help
It’s important to remember that there are specific rules and limitations associated with the aforementioned deductions. Therefore, it's a good idea to consult with a licensed tax professional—like those at Club Capital—to ensure you're following all of the requirements and maximizing your deduction.
Don’t miss out on deductions you’re entitled to! Learn how Club Capital's accountants can help your agency ensure it’s getting the tax deductions it deserves. Schedule a demo today.