For individuals, filing taxes annually may feel like a payday if they get a refund. However, for businesses, filing taxes usually means writing a check to the IRS. Major tax deductible expenses can help lower that amount, and some of the largest eligible deductions are business insurance premiums.
When you are looking for insurance premium deductions, remember these two things: Insurance premiums are only deductible when paid towards policies that are in place solely to benefit the business; and generally, premiums paid towards group insurance benefits are deductible, as these policies are considered “beneficial” to the business. However, solopreneurs take note: premiums paid for one person – usually the owner – aren’t. That said, there are still many eligible premium deductions. Some common ones include:
- group health insurance premiums, including premiums paid for other group medical policies, such as long-term care or accident insurance
- worker’s compensation insurance per individual state laws
- credit insurance providing protection against losses due to debts owed to the business
- “overhead,” including “key man,” premiums, which provide coverage if a business incurs losses due to long-term disabilities, illnesses, or injuries to key employees
- business interruption insurance premiums – a policy providing coverage if you shut down due to losses from covered perils such as fire
- professional liability insurance premiums – this is the most common commercial insurance policy, protecting a business against any losses it is found liable for, as well as claims for defective work and negligence. It also covers common liability claims such as customer injury. Similarly, malpractice insurance premiums are deductible.
- life insurance premiums paid for employees or officers of a company, but only if the business owner isn’t a primary or secondary beneficiary
- commercial vehicle insurance policy premiums for vehicles used solely for business. However, if your business is going to claim a standard mileage deduction, you can’t use this; it’s only deductible if all car expenses are calculated and deducted. For example, if a business adds up all expenses for a vehicle, including maintenance and exact total mileage, then premiums will be deductible, as they’d be considered part of total expenses.
- State unemployment insurance fund contributions may sometimes be deductible as a form of taxes if the contributions are viewed as “taxes” under state law.
Although life insurance premiums are often deductible, they may not be if they’re alongside various annuity product premiums. Additionally, premiums paid towards insurance in efforts to secure loans aren’t deductible.
Resources: Great resources include IRS Form 1040 and IRS Publication 535. Both include deduction calculation worksheets, and Chapter 6 of Publication 535 is dedicated to explaining what premiums are deductible. The IRS Tax Guide For Small Business (Publication 334) is helpful for small businesses.
Check annually for changes, and do think twice before you decide not to bother searching for eligible deductions; it’s very much worth the effort.