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Are Life Insurance Premiums Tax Deductible?

Are Life Insurance Premiums Tax Deductible

"Are life insurance premiums tax deductible?" this is the question many people ask when they are looking to purchase insurance policies. Of course the answer is a resounding "yes". Just about any kind of insurance policy can be considered a tax deductible expense. And, as a policyholder you will want to maximize every dollar you put towards your premium payments. To do so you may want to consider a few of the following benefits.

First of all you need to realize that any time you are making a deductible payment on an insurance policy the money is considered a taxable deduction. This means that the money you are contributing to your policy is considered income for tax purposes. This is different than a Roth or traditional retirement plan in which case there is no income tax deduction. The money that you contribute to these types of plans is considered taxable, however. So, make sure you understand all of the differences between the two before you decide which one is best for you.

Also, another way to determine whether your premiums are tax-deductible is by looking at whether the premiums paid are business expenses. Yes, it is true that any premiums paid to a business or a qualified employer are deductible business expenses. However, there are certain employers (such as most labor unions) that don't allow this deduction. So, you will have to check with your union to see if your premiums are deductible or not.

Another option that many people do not consider, but could be very significant, is the effect of an adjusted annual gross income. If an individual's AGI has increased, there could be a greater chance that the individual could deduct their premiums from their income taxes. Again, this only applies to individuals who are in a higher tax bracket and who have maintained their standard of living for a number of years.

For the self-employed, it's important to look at how much you are spending on your business overhead expenses. These include not just general expenses such as utilities, supplies, payroll, etc, but also a special category called "self-employed health expenses". What are self-employed health expenses? These are expenses that would normally be considered part of the business owner's gross income and are therefore subject to the Self-Employment Tax.

There are a few different ways that your premiums can be tax deductible to you or your beneficiary. They include: business casualty losses, premiums paid in the name of a dependents, advance premiums, and death benefits. The death benefits refers to any death benefit that is paid out to beneficiaries prior to the death of the policy holder. The premiums paid in the name of a dependent are usually deductible business overhead expenses.

Business casualty losses and other deductions are available on a yearly basis. You must file an itemized statement with the IRS with your tax returns. With most tax benefits this includes the first $1000 of any policy holder's premium paid during the year. If you have more than one dependent, the premiums may be tax deductible for each one. To take advantage of these deductions you must notify the IRS as soon as you become aware that you are going to need to itemize your tax returns. Even if you don't itemize, the total of your premiums for each year can still be taken into account when you file your returns.

Advance premiums are payments that are made to the insured prior to the policy holder dying. These premiums are not taxable and are included in the covered event. With all policies, the amount that can be taken into account for the Self-Employment Tax Deduction depends on whether your income is over the limit and the tax bracket in which you live. Also, there are certain age limits in which the death benefit becomes tax-free, such as for self-employed individuals over 65 or if your dependents are not US residents. If you meet any of these conditions your death benefit can be completely tax free.

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