Insurance and Taxes: What is and is not deductible
April 4, 2019
Every year, business owners seek to maximize the number of eligible deductions on their tax return. Did you know that premiums your company pays for business insurance may be deductible as a business expense on your federal tax return? This deduction, if applicable, can provide the business with significant tax savings when you go to file.
The Internal Revenue Service (IRS) allows the “ordinary and necessary cost of insurance” as a deductible business expense as long as the expense is necessary for a trade, business, or profession. The IRS generally accepts the following as premium deductions by businesses:
- Insurance that covers fire, storm, theft, accidents, or similar losses such as commercial property insurance
- Credit insurance that covers losses from business debts
- Liability insurance
- Malpractice insurance that covers your personal liability for professional negligence
- Workers’ compensation insurance
- Contributions to a state unemployment insurance fund
- Insurance covering company vehicles used in your business
- Life insurance covering your officers and employees if you are not directly or indirectly a beneficiary under the contract
- Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause
If you use your car for business purposes, then any costs associated with using it exclusively for business may be deducted. This can include gas, maintenance, and insurance premiums. You should know though, if your employer reimburses you for these expenses though, you will not be able to write off these costs on your taxes.
As with any tax related matter every situation is unique, and it’s best to seek answers to all your tax and insurance questions from a tax expert.
Happy tax filing!