FAQ: Is Business Insurance Tax-Deductible?
Dan Levenson June 16, 2016
When running a business, tax deductions are helpful to defray some of the costs involved with keeping your business profitable. One of the more common questions that tends to come up is: “Is business insurance tax-deductible?”
Here is some helpful information on what is deductible when it comes to business insurance, and what generally accepted premium deductions are included—and those that are not.
The Basic Rules of Insurance Deductions
When it comes to insurance deductions, there are two general rules:
- The insurance premium has to perform two functions—it must benefit the business and it must have a business purpose. For instance, you cannot deduct personal insurance unrelated to the business.
- Premiums for group insurance are typically permitted, but coverage must benefit the whole company, not one person. For instance, the benefits must be for employees, owners, and managers, not solely the owner.
What You Cannot Deduct
There are a few circumstances where business insurance is not considered deductible, which include, but are not limited to:
- Annuity premiums and some life insurance policies
- Self-insured reserve premiums
- Securing a loan with premiums paid on insurance
- Policies that pay out in case of sickness such as a disability or illness policy
The good news is that there are plenty of insurances that are tax-deductible according to the Internal Revenue Service. Here are a few of the specific situations and types of insurances that are deductible to businesses:
- Credit Insurance. This is the type of insurance that takes care of losses for bad debts in a business.
- Employee Insurance. This includes medical insurance and group hospitalization for the employees at your business. It also includes long-term care insurance that is offered to your employees.
- Liability Insurance. Liability insurance is tax-deductible according to the IRS. It is also known as commercial general business liability and is there to protect the company’s assets.
- Business Interruption Insurance. This type of insurance is deductible and covers the business in case of a loss of profits due to being shut down. For instance, when there is a flood or fire at the company and it is temporarily inoperable.
- Malpractice Insurance. Typically for the medical field, this is what covers the business in the case of damage or injury to a person in the case of negligence.
- Auto Insurance. If your company’s vehicles are covered by insurance, this is a deduction that is able to be taken when it comes to taxes. This is only acceptable if your company uses the actual mileage and not the mileage deduction.
- Life Insurance. In this tax deduction scenario, as long as the life insurance is for the employees of your company, you are able to deduct it. What you cannot deduct is when you are indirectly or directly a beneficiary.
- Overhead Insurance. This insurance is for expenses related to overhead when there is an injury or illness and you have long periods of disability.
- Worker’s Compensation Insurance. This deduction is pretty self-explanatory. If you have this type of insurance, it is considered a business insurance tax deduction.
In any of these business tax deduction scenarios, there are always exclusions, exceptions, and certain specifics that you must follow as a business owner. However, a majority of insurance premiums are fortunately considered the cost of doing business and are tax-deductible, which can save the company quite a bit of money each year.
If you want to learn more about business insurance tax deductions or how we can help you save money on expenses when it comes to business insurance in general, feel free to contact us.