Your small business tax returns may not be due until April, but now’s the time to start your tax prep so you’re ready for the big day. As you gather documents and compile receipts, consider the commercial insurance premiums you can deduct as business expenses.
IRS Expense Deduction Guidelines
According to the Internal Revenue Service (IRS), small businesses can deduct ordinary and necessary costs associated with doing business. Certain insurance premiums fall into this category of deductible expenses.
Insurance Premiums you can Deduct
Here’s a partial list of business insurance premiums you may be able to deduct on your tax return.
1. Auto insurance for commercial vehicles the business owns if you deduct the actual cost of the vehicles and not the standard mileage deduction.
2. Business interruption insurance that covers lost profit if a covered event causes a temporary business shut down.
3. Credit insurance that pays for losses caused by bad business debts.
4. Group health insurance premiums if the company’s employees, managers and owners benefited and the policy is written in the business’s name.
5. Liability insurance that covers accidents.
6. Life insurance for officers and employees if you are not the beneficiary of any of those policies.
7. Long-term care insurance available to employees, managers and owners.
8. Malpractice insurance for personal liability that occurs because of professional negligence.
9. Overhead insurance, which covers business expenses if you become disabled.
10. State unemployment insurance fund contributions if they are taxed under your state’s law.
11. Workers’ Compensation Insurance that covers employees’ occupational injuries or illnesses.
Insurance Premiums you Cannot Deduct
IRS rules prevent your business from deducting several insurance premiums, including:
- Certain life insurance or annuity premiums
- Insurance premiums paid to secure a loan
- Personal insurance premiums
- Self-insured reserve payments
- Sickness or Disability insurance premiums
How to Calculate Insurance Premium Deductions
To calculate your insurance premium deductions, gather your records and add all the allowable premiums you paid during the tax year. Include this figure with your other business deductions on IRS Form 1040. You can find additional helpful information about tax deductions in IRS Publication 535, the Business Expenses worksheet, and IRS Publication 334, the Small Business Tax Guide.
Insurance protects your business and offers invaluable peace of mind. Talk to your qualified professional tax preparer now as you prepare to file your taxes. He or she will evaluate your specific insurance policies and business circumstances, help you calculate your deductions properly and assist you in maximizing your tax return this year.