Questions about auto-insurance dividends

midwest_46 · Joined: 14 Feb 2008 Posts: 2

My situation concerns line 21 of the federal tax form 1040. This line
pertains to "other income".

In May 2007, I received a dividend from my auto-insurance company. The
amount of the dividend was $25.

According to page 24 of the instructions for form 1040, dividends on
insurance policies are taxable if the dividends exceed the total of
all net premiums that I paid for the contract.

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In late December 2006 or early January 2007, I paid $360 for auto
insurance for the first six months of 2007. In late June 2007 or early
July 2007, I paid another $360 for auto insurance for the next six
months of 2007. So, I paid $720 for the year.

So, what are my "net premiums"? What is the total of these net
premiums? Is the $25 dividend taxable?

Thanks for any information.

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Archived from group: misc>taxes>moderated

Paul Thomas, CPA · Joined: 25 Aug 2007 Posts: 3094

wrote
> My situation concerns line 21 of the federal tax form 1040. This line
> pertains to "other income".
>
> In May 2007, I received a dividend from my auto-insurance company. The
> amount of the dividend was $25.
>
> According to page 24 of the instructions for form 1040, dividends on
> insurance policies are taxable if the dividends exceed the total of
> all net premiums that I paid for the contract.
>
> ----------
>
> In late December 2006 or early January 2007, I paid $360 for auto
> insurance for the first six months of 2007. In late June 2007 or early
> July 2007, I paid another $360 for auto insurance for the next six
> months of 2007. So, I paid $720 for the year.
>
> So, what are my "net premiums"? What is the total of these net
> premiums? Is the $25 dividend taxable?

For your personal vehicle, they are not taxable or reportable as
income -it's just a return of what you paid.

If you deducted those amounts for business, then it is income to the
business.

--
Paul A. Thomas, CPA
Athens, Georgia

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Frank S. Duke, Jr. · Joined: 25 Aug 2007 Posts: 137

> My situation concerns line 21 of the federal tax form 1040. This line
> pertains to "other income".
>
> In May 2007, I received a dividend from my auto-insurance company. The
> amount of the dividend was $25.

"Dividends" from casualty insurance companies are almost always a return of
premium, like an after the fact discount. They are not taxable unless you
get more dividend back than you paid in premiums.

All freely provided advice guarantee correct or double your money back

Frank S. Duke, Jr. CPA
Cincinnati, OH USA

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