As an insurance agent, you must be licensed by the state where you sell insurance. The law will require you to take some basic courses in the industry, pass a test and apply for a license, which you must renew regularly. The Internal Revenue Service classifies your professional education costs and license fees as business or employee expenses, making them tax deductible.
The IRS allows you to deduct business expenses if you are a sole proprietor or unreimbursed employee expenses if you are an employee. The tax rules state that the expenses must be "ordinary and necessary" and needed to carry on your business or trade. "Licenses and regulatory fees" are specifically allowed as deductible expenses.
Insurance agents may deduct other expenses required by their profession, including the cost of computers, printers, job-related transportation and lodging, license renewal fees, professional association dues, education expenses, depreciation of equipment, and home-office costs.
Claiming the Deduction
You must itemize expenses on Schedule A to deduct unreimbursed employee expenses, and you can only deduct the part of your expenses that exceeds 2 percent of your adjusted gross income. If you are a sole proprietor and deducting a license fee as a business expense, you can deduct the entire amount of the fee on Schedule C. Employers who reimburse agents for license fees deduct the fees on their business returns; employees may not deduct those fees.
The states have different requirements for insurance licenses. In Alabama, for example, you must be at least 18 years old, complete at least 40 hours of insurance courses and pass the state's exam. Insurance licenses fall into several general categories, including life, accident and health, fire and casualty, automobile, crop, and personal coverage. License and application fees vary. As of 2012, Kansas requires a $30 application fee for license applicants and an additional $50 license fee for nonresident agents.
Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.