Staying on the right side of the IRS while deducting everything possible can help improve your business’s financial situation
- Most business insurance premiums are tax-deductible
- There are some exceptions to consider
- Learning which premiums you can and can’t deduct is crucial
- Securing professional tax assistance is your best bet
You don’t want to mess with the IRS. This government agency means business, and you will be in serious trouble if they catch you cheating on your taxes. Honesty is always the best policy when filing company taxes.
Even if you don’t purposely mislead the IRS and make an honest mistake on your tax return, the financial penalties could be crippling for a small business. So it’s best to avoid taking business insurance deductions unless you’re 100% sure they’re applicable in your situation.
At the same time, you also don’t want to leave deductions on the table because doing so affects your company’s bottom line. After all, deductions reduce your company’s tax bill. Business insurance premiums, for instance, are mostly deductible – with a few exceptions you should learn.
Understanding what you can and can’t deduct is essential for any business owner. Having up-to-date information can also ensure your company’s survival. Here’s a thorough answer to the question: Is business insurance tax deductible?
Deductible business insurance premiums
The good news when filing your business taxes is that most business insurance premiums are deductible. You can write these expenses off your taxes to reduce your bill. Items you can deduct include:
Employee health and life insurance
Businesses that supply employees with health and life insurance can deduct those premiums from their taxes. However, you can’t deduct your personal health and life insurance as a business expense.
General liability insurance
Any coverage your business has for third-party liability claims is deductible on your company’s tax return. This general liability policy can protect against lawsuits, court costs, and other legal expenses.
Commercial property insurance
Your commercial property policy, covering losses associated with fire, theft, and other perils, is deductible. This coverage protects your business structure along with its contents, landscaping, and customers’ personal property.
Professional liability insurance
Your professional liability insurance plan is deductible. This insurance provides coverage against negligence, wrongful acts, and services that cause loss or injury to another party.
Workers’ compensation insurance
You’ll need workers’ compensation insurance if an employee is injured on the job and can no longer work. Fortunately, you can deduct the premiums associated with this essential insurance from your taxes.
Business interruption insurance
Business interruption insurance pays for losses incurred when you have to shut down due to cyberattack, fire, flood, or another incident. Your business interruption premiums are deductible.
Business vehicle insurance
Insuring your company’s fleet is an essential part of doing business. You can deduct insurance premiums associated with this fleet, although you’ll want to be careful if you also use the vehicles for personal reasons.
Some businesses invest in credit insurance, which covers losses arising from unpaid debts. This premium is deductible if you find it’s something your company needs.
A cybersecurity insurance policy protects you and your customers if a hacker breaches your network and steals company data. This coverage also helps pay out victims while helping you restore your network after a cyber incident.
Most business insurance premiums are tax deductible. If the policy relates entirely to your business, you can probably write the premium off without much worry. However, you’ll want to speak with a tax professional if you have any questions.
Business insurance premiums you can’t deduct
After learning which items you can deduct, you’ll also want to figure out what you can’t deduct. Most of these non-deductible items relate to personal use because the government doesn’t want you writing off expenses that aren’t part of your business. These premiums include:
Family health insurance
Your family’s health insurance is a personal expense and, therefore, not deductible on your business’s tax filing. There could be exceptions if your family members are employees of the company.
Personal vehicle insurance
Any vehicle you use in your personal life isn’t considered a business expense. Therefore, your car insurance premium isn’t a deductible item on your company tax return.
You can write off part of your home insurance if you conduct some business from your residence. However, deducting the entire amount could land you in hot water because the building isn’t used by the company 100% of the time.
Personal life or disability insurance
Any premiums you pay for life insurance, annuities, or disability insurance are considered personal rather than business policies. The same goes for a policy covering your earnings losses if you end up sick or incapacitated.
As you can see, there’s a clear line between business and personal insurance when filing your taxes. Attempting to deduct individual insurance premiums without adequate proof of company-related use could put you in trouble with the government. The IRS will eventually want to see this proof so it’s best not to take any chances.
Regarding self-employment, you can deduct premiums offering protection to any employees the company has. However, you can’t deduct premiums for insurance policies that benefit you personally, at least as part of your business tax return.
It’s sometimes possible for a self-employed individual to deduct the health insurance they provide for themself, spouse, and dependents using the self-employed health insurance deduction, but this only applies if they don’t have any other health insurance. You can also deduct some of your home insurance if you work from home, and part of your vehicle insurance if you use it for business purposes.
Getting the insurance help you need
Doing your business taxes is a significant job, and ensuring they’re completed properly is essential to your company’s long-term success. Making even a small mistake could land you in trouble, and the financial and legal penalties could be overwhelming. You’ll also want to ensure that you have all the necessary business insurance to protect your company under any circumstances.
Avante Insurance offers commercial insurance services in South Florida. Our team of professionals knows what your company needs to stay protected, providing peace of mind as you run your business. Contact Avante Insurance for all your commercial tax needs.
This blog and website are made available by the publisher for educational and informational purposes only. It is not to be used as a substitute for competent insurance, legal, or tax advice from a licensed professional in your state.