The vast majority of insurance agents work on commission. Many agents are independent contractors, receiving either a 1099 as an independent contractor or a W-2 as a statutory employee. Even in cases where the agent receives a W-2 from one insurance company, he will frequently receive 1099s from other companies, if he represents more than one line of insurance or one insurance company. Because of the independent nature of the sales profession, there are tax planning measures you can take to maximize your after-tax income this year.
Claim Meal and Entertainment Deductions
Generally, whenever you meet at a restaurant or cafe with a client or prospect for business purposes, you can deduct half the tab from your income. The expense must not be exceedingly lavish or extravagant, and the event or meal must be directly related to business purposes. You must also have engaged in business with the other parties during the event or entertainment period and you had some specific reason to believe in a favorable business outcome. Keep your receipts.
If you received 1099 income this year, for which no self-employment tax was withheld, you must pay self-employment tax on at least a portion of your income. That portion is the first $106,800 of combined wages, tips and net earnings, as of late 2010. The self-employment tax consists of 12.4 percent in Social Security contributions and 2.9 percent for Medicare, for a total of 15.3 percent. You file self-employment taxes by filing an IRS Schedule SE (Form 1040).
Travel and Mileage Expenses
You can deduct unreimbursed mileage that you put on your car for business purposes, provided you keep records. As of 2010, you can deduct 51 cents from your income for each mile driven for business purposes, not including miles driven between your residence and primary place of work. You cannot use the mileage deduction, however, if you claimed a Section 179 deduction or accelerated the depreciation on your vehicle.
Home Office Deduction
If you have a home office dedicated exclusively for business use, divide the office square footage by the square footage of the entire residence. This is the amount of your rent, utilities and mortgage payments you can claim as a home office deduction. To claim this deduction, fill out IRS Form 8829, Expenses for Business Use of Your Home, and fill out a Schedule C, Profit or Loss from Business, and a Schedule A, Itemized Deductions.
You can deduct the cost of any continuing education (CE) courses required to maintain your license or appointments to sell as an insurance agent by filling out Schedule A, itemized deductions. You cannot generally deduct the costs of any education required to qualify you for a new career, so you may not be able to deduct the cost of your insurance license preparation test if you came to the industry as a career changer. But you can deduct the costs of required suitability and compliance classes and certifications such as the Certified Life Underwriter and Chartered Financial Consultant.