As you wrap up another busy year, make sure you keep track of your expenses and any eligible tax deductions – 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
Although you may be an expert when it comes to Medicare, you’re probably not an expert in tax laws. Hiring a qualified professional such as a licensed CPA will ensure you maximize 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 both “ordinary and necessary” and not personal expenses. Ordinary means a common or accepted expense in your industry. Necessary means an expense that is helpful and appropriate for your business. Anything you use for both home and business (such as internet service, if you work from home) you must divide into accurate percentages.
The IRS says to keep records for your business tax deductions indicating what items or services you bought, when you bought them, and how much you spent. You can substantiate 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
Keep your records for at least three years. If the IRS audits you, they can review your 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 you can deduct and which records to keep. The IRS updates this document annually, prior to the tax season.
Top Deductions for Independent Insurance Agents
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, in 2023, allows for a deduction of 65.5 cents for each business mile driven.
The best way to ensure you are accurately tracking your mileage is to use a mileage tracking system, which will automate tracking. There are multiple mileage tracking apps available that also categorize the purpose of the trip and create a report for tax purposes. Whereas most have a fee, they are a worthwhile expense because 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, repairs, and depreciation on new vehicles, which could result in larger deductions.
Licensing Fees & Continuing Education
This includes fees to get or renew your license and any courses or certifications you need to enhance your skills.
This includes software specific to your insurance agent duties, such as your CRM and any software you use 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 that space. 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.
This includes any supplies you buy for your office, such as your computer, printer, scanner, ink, paper, pens, binders, folders, and even greeting cards (plus postage) for clients. 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, postcards, flyers, and any print and online advertising to promote you and your business.
Accurately tracking your expenses 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 to take up to a 20% deduction on qualified business income. This is known as the qualified business income deduction (QBID). There are certain limitations, based on the type of business you operate and the amount of income you earn. A tax professional can advise you as to whether you qualify for QBID.
The team at PTT financial is here to answer your questions. Our goal is your success! Contact us today.