Is Business Insurance Tax Deductible?
Once the clock strikes midnight on New Year’s Eve, many people start thinking about their taxes. Yes, taxes are due April 15, but it helps to be prepared, especially if you are a business.
Whether you are a sole proprietor, a medium-sized business, or a large corporation, you likely have a lot of business expenses. You may wonder what is tax deductible. For example, you may have a lot of insurance expenses. If you pay a lot of money for business insurance, are your premiums deductible from your taxable income?
The answer is yes. Generally speaking, business insurance is a cost of doing business, according to the IRS. You would not purchase the insurance if you did not own a business, so if the insurance is considered both ordinary and necessary, it is deductible. An ordinary business expense is one that is commonly accepted in your business or industry, while a necessary business expense is helpful for your business or industry.
What Types of Insurance are Tax-Deductible?
- General liability insurance
- Professional liability insurance
- Commercial property insurance
- Business interruption insurance
- Workers’ compensation insurance
- Commercial auto insurance
- Unemployment insurance
- Health insurance
- Cyber liability insurance
What is Not Tax-Deductible?
Insurance may not be tax-deductible if used in the following ways:
- Insurance for personal benefit. If a business policy covers both personal and business use (such as a vehicle or property), the personal portion is not deductible.
- Life insurance premiums for employees. If the business is the beneficiary of a life insurance policy, the premiums are not deductible. However, if employees are the beneficiaries and the coverage is part of a group benefits plan, it may be deductible.
- Loan protection insurance. Insurance premiums to protect a business loan are generally not deductible if the policy’s sole purpose is to ensure the loan is repaid.
- Self-insurance reserves. If a business sets aside its own money as a reserve for future claims instead of purchasing insurance, those reserves are not deductible.
- Executive compensation structures. If insurance policies are structured as deferred compensation or tied to retirement or severance packages, the IRS will likely deny them as deductible expenses.
Work With a Tax Professional
Running a business can be challenging. If you add insurance to the mix, there is likely to be a lot of confusion involved. If you have questions, you should work with a tax professional to better understand which policies can be written off as a business expense. A professional can also answer your questions and make sure you get all the deductions you are entitled to receive.
Contact Our Michigan Business Insurance Agency Today
Business insurance can be a costly expense, but you do not have to go without it to save money. Let the team at Hartman Insurance Agency get you the best deal on insurance for your business.
Get the coverage you need for your Michigan business at the right price. We can help you understand your options. Call (734) 999-4190 or fill out the online form to learn more.