Due to the largest tax overhaul in more than 30 years, there will be big changes during the 2019 federal income tax filing season. You may have heard about the impact of the new tax law on large corporations, but smaller businesses, such as independent insurance agents, will be affected as well.
Most insurance agents run what the government calls a “pass-through” business, where the owner reports profits as personal income, rather than filing as corporation. Many pass-through businesses report total income and deductions of less than $10 million and are the most common type of enterprise in the country.
For the 40 million taxpayers who qualify as pass-through businesses, the new tax law has the potential to significantly lower their tax burden and simplify the process.
How Will the New Tax Law Affect Insurance Agents?
The good news is that under the new tax law, the majority of pass-through businesses—more than 70 percent of them—will qualify for a 20 percent tax deduction. Insurance agents whose income is lower than $157,500 for single filers and $315,000 for joint filers will be able to claim this deduction.
In addition, the standard deduction was almost doubled from $6,500 to $12,000. This will help many insurance agents save time during the tax season by not having to methodically itemize every expense.
The Tax Law Could Save Insurance Agents Even More. Here’s How.
The deduction changes are only part of the story. The tax law also includes a lower rate within most tax brackets. If you combine the 20 percent deduction with the lower top tax rate, independent insurance agents could lower their tax bill by as much as 29.6 percent, according to a Wall Street Journal analysis.
These savings should be available to most insurance agents, but make sure you consult with a tax expert. There are exceptions for S corporations, which most personal service businesses fall under, and some types of capital investments.
The information in this article is not offered as legal or tax advice. We suggest you seek the advice of your tax advisor, attorney, and/or financial planner to make certain you obtain the tax deduction(s) you are entitled to. All material is presented solely as educational information.