If you run a small business, you know that business insurance is an important tool to protect your company and your employees. But is insurance tax deductible? The good news is that in many cases, insurance is a deductible business expense. Knowing which types of business insurance premiums are deductible can help you save money at tax time.
This general guide will help you determine the types of business insurance premiums that may be deductible and those that are not.
Deductible Business Insurance
The types of business insurance premiums that are tax deductible for your company will depend first on what is considered ordinary and necessary for your field and business. Ordinary refers to coverage that most businesses like yours have and accept as common practice. Necessary means that the coverage is recommended as helpful and appropriate for your business, and may or may not be required by law.
Business insurance coverage considered deductible as a business expense might include:
- Workers’ compensation insurance
- Fire, theft, flood, storm, and similar protection insurance
- Credit insurance providing bad debt coverage
- Malpractice insurance
- Liability insurance
- Group medical and long-term care insurance for employees
- Health insurance for self-employed persons
- Business interruption insurance
- District of Columbia
- Overhead insurance
- Vehicle insurance covering business vehicles for liability, loss, and damages
- Life insurance coverage for which the employer is not the beneficiary
Nondeductible Business Insurance
There are a few kinds of business insurance that you usually cannot deduct from your taxes. These may include, but are not limited to:
- Policies providing loss of earnings coverage
- Self-insurance reserves
- Life insurance policies for which the employer is the beneficiary
- Insurance purchased to secure a loan
While it’s generally not allowed to deduct premiums for these types of policies, there may be other losses affiliated with these policies that can be deducted.
How to Deduct Business Insurance Premiums
How you make deductions will depend on factors like whether your business is a sole proprietorship, partnership, LLC, or corporation, and if you use a cash or accrual accounting system. It’s also important to note that you can’t deduct prepayments on insurance premiums. So if you paid for an insurance policy that covers multiple years, you would only deduct the adjusted premium amount for the time period covered by your taxes.
There are a lot of moving pieces when it comes to preparing taxes for a business. It’s in your company’s best interest to consult with a tax professional who can identify the proper worksheets and amounts for your business insurance deductions. When you work with an expert, you avoid fees and penalties that can hurt your bottom line.
Protect Your Business with Cerity
Cerity knows small business, and that’s why we make cost-effective, time-saving solutions that meet your specific workers’ comp insurance needs. Simply go to our free online quote tool and tell us a little bit about your business to get an affordable rate. You can buy a policy online in minutes to cover you for the year ahead.