Every year, Americans dread the duty of doing their federal taxes. But that chore can be made more bearable if you keep in mind several insurance-related tax deductions.
“There are plenty of deductions out there,” says Patrick Cox, founder and CEO of Houston-based Tax Masters. “But we run across plenty of taxpayers who haven’t filed for (insurance-related tax) claims in years.”
Before we get started, a quick note: For a thorough examination of all of your possible tax deductions, experts recommend you visit with a trained tax specialist or accountant.
Now, here are some insurance-related tax deductions that could save you some money -- and give you some happy returns.
1. Home mortgage insurance -- This one’s a no-brainer. Basically, the deduction enables you to deduct all of your home mortgage insurance premiums. Taxpayers can take this deduction on their main and second homes.
By and large, it’s the largest insurance-related deduction that’s available to taxpayers. But there are caveats. For instance, you can’t take the full deduction if the fair market value of your home and the mortgages add up to $1 million (or $500,000 for married couples filing separately).
"If you own a rental home, and you don’t live in it, the homeowner’s insurance on the property is deductible, too," Cox says. “You can even deduct the travel expenses for driving to and from your property."
2. Health insurance – Certain health insurance deductions are on the table, too, especially if you itemize each deduction and avoid taking the standard deduction.
“Your medical insurance is considered another medical expense,” says Barbara Weltman, author of the book "J.K. Lasser’s 1,001 Deductions and Tax Breaks 2010." “Just add your medical expenses together – basically things that are not already covered by your insurance, like contact lenses. You can deduct more than 7.5 percent of your adjusted gross income.”
3. Health insurance for small business owners – Small business owners really get some decent tax breaks related to health insurance. “If you’re a self-employed person and your family and dependents are on your personal medical plan, you can use that as a business deduction,” Weltman says.
Self-employed people also can deduct the cost of their health insurance premiums from their self-employment taxes on Schedule SE. This is a one-time opportunity just for the 2010 tax season, according to tax expert Keith Mendonsa.
However, be aware that you can't deduct premiums paid for any month when you were eligible to participate in an employer-sponsored health insurance plan, and that the amount you deduct can't be more than your net self-employment income for the year, according to Mendonsa.
4. Other small business deductions – Tax Masters' Cox points out there are plenty of insurance-related deductions that most business owners don’t even know exist.
For instance, workers' compensation insurance and travel insurance are deductible, he says. Also, "key man" life insurance -- which provides financial protection if a business owner is injured and can't run the business or the owner dies -- is deductible.
5. Long-term care insurance – Premiums paid for long-term care insurance are deductible for business owners and individuals. The deductions follow a sliding scale based on your age, says Tom Casey, a certified financial planner in Shelton, Conn.
"You may not be able to write off your auto or life insurance, but long-term care insurance is definitely on the table," Casey says.