Q: Is Business Insurance Tax Deductible?
A: Yes, you can deduct the cost of small business insurance premiums from your taxable income. That's because the IRS considers insurance a cost of doing business. You'll have to fill out some forms to take advantage of this kind of deduction, so you may want to team up with a tax advisor for guidance. A tax professional can ensure you fill out the proper paperwork so that you don't pay too much in taxes or end up with fines for not paying enough.
Writing Off Your Business Insurance Premiums: Details
Generally speaking, you can deduct your insurance premiums if those policies benefit the business and serve a business purpose. In the case of small business insurance, that's certainly true! But you may run into a gray area if you are a sole proprietor who wants to deduct health insurance premiums. In some situations, you may not be able to.
That's why we recommend that you work with a tax professional. They know all the conditions that must be met to save some tax dollars. Miscalculated deductions are usually a red flag for audits, so you want to ensure you do it right the first time.
For worksheets that help you calculate deductions, you can turn to…
Which Premiums Can Be Deducted?
According to the IRS Business Expenses guide, you can usually deduct premiums for the following types of insurance:
- General Liability Insurance. This policy covers legal expenses when your business is sued over third-party bodily injuries on your property, property damage your business causes, and advertising injuries.
- Professional Liability Insurance. Also called Errors and Omissions Insurance or Malpractice Insurance, this policy covers lawsuits over your business's alleged professional negligence.
- Commercial Property Insurance. This compensates you for the cost of repairing or replacing your damaged or lost business property (e.g., real estate, equipment, inventory, etc.).
- Business Interruption Insurance. Usually part of your Property Insurance policy, this covers your lost profits when your business is shut down because of fire, windstorms, or another covered event.
- Cyber Liability Insurance. Third-party Cyber Liability policies cover lawsuit expenses when you're responsible for someone else's data breach. First-party Cyber Liability can cover cleanup costs when your business suffers a breach.
- Workers' Compensation Insurance. Most states require employers to carry a certain amount of Workman's Comp coverage. It pays your employees' medical expenses and lost wages when they're injured on the job.
- Commercial Auto Insurance. This policy covers liability and property damages associated with accidents in business-owned vehicles. Note: you have to choose between this deduction and the mileage deduction. You can't have both.
- Unemployment insurance. You can usually deduct the amount you contribute to a state fund.
- Health insurance and life insurance. These policy premiums can be deducted if they are for employees.
By contrast, here's what you usually can't deduct:
- What you pay into a self-insured reserve (some big businesses use these reserves instead of carrying Workers’ Comp coverage).
- Premiums on a disability policy that covers your lost income.
- Premiums for loan protection insurance.
Of course, when it comes to taxes, nothing is written in stone. Be sure to talk over these items with your tax advisor if you have any questions.
If you have questions about business insurance, feel free to contact us at 800-688-1984.