Getting income tax deductions and exceptions is challenging, but worth-doing if you want to lower your bottom line. The big question is, which items that are tax-deductible?
Let’s take life insurance plans, for example. These can be tax-deductible if you follow the right steps. It is a little more complicated than marking a checkbox. For some people, claiming the deduction is more trouble than it’s worth. That’s why hiring a professional that understands a life insurance policy and any other tax-deductibles can be the difference between paying taxes in full and saving on taxes.
What About Individuals?
As an individual, paying your life insurance premium doesn’t qualify it as being tax-deductible. This is based on the assumption that you’re not self-employed and have not been self-employed for the qualifying year. For more information, check with your current ULIP.
Self-Employment Has Its Perks
This one is tricky. Usually, you can’t write off life insurance when you’re self-employed. This has a lot to do with the IRS not considering life insurance a business expense. Having a professional to handle your taxes can pay off big time in this instance. You may be able to write off life insurance as a business-related insurance premium.
Every individual will have a different situation, so always double-check before filing.
Businesses Are When It Get Really Complicated
Well, not really. The paperwork passes through several departments that know what they’re doing. This section is complicated for smaller companies and companies that are restructuring. Depending on the amount and type of employees, it can become a huge nightmare. Complications can also arise from ongoing lawsuits that involve life insurance policies.
LLCs
Income by an LLC falls into the category of taxable personal income. LLC is separate from its owners and can have one or many members. With a little wizardry, LLC can gain the benefits of an S Corporation. Even a single-member LLC can do this, and the difference is night and day with an income tax deduction. In short, when an LLC is taxed as an S Corporation, they can report salary as a business expense.
When you factor in a life insurance policy, this can yield nice benefits on a yearly return. Unfortunately, not every LLC can qualify to be taxed as an S Corporation.
S Corporations
An S Corporation differs from LLCs by allowing business expenses to be deducted from the company’s taxable income. An S Corporation has some pretty good tax benefits but is not a business entity. When you hear ‘S Corporation’, it is easier to think of it as a way a business chooses to get taxed. This is an important distinction since LLC is not a tax classification. Do you see where this is going?
An S Corporation that actually qualifies under that banner has massive flexibility in how they handle income tax deduction for life insurance. This includes how they choose to structure payments or with extra time needed to file specific documents.
Wrap Up
You should never play the guessing game with taxes. Taking a deduction, you don’t qualify for is a big deal, even if it’s a small amount. Get it right so that taxes don’t eat away at your conscience for the rest of the year. Understand the terms or get a professional to handle all of the heavy liftings.