Is Business Insurance Tax Deductible?

If you have a business, some expenses can be deducted from your taxes, which includes the cost of insurance.  A deduction for business insurance premiums may provide your business with considerable savings. Before filing your tax return, read our post to learn which insurance premiums may be considered tax-deductible.

The IRS lets you deduct the ordinary and essential costs of insurance as a business expense, which includes expenses linked to insurance such as financing costs for policies related to your business. Businesses are generally required to carry several types of insurance due to industry requirements, state laws, or contractual obligations. For instance, businesses in some states may be required to have workers comp insurance and provide disability benefits to their employees. The good news is these requirements are categorized as “ordinary and necessary” by the IRS.

Deducting Insurance Premiums

For the most part, you can deduct your insurance premiums if these policies benefit your business. According to the IRS, you can deduct the cost of insurance, which may include the following:

  • General liability insurance: This policy covers legal expenses if your business is sued over third-party bodily injuries while on your company’s property. It also covers property damage your business may have caused, including advertising injuries.
  • Professional liability insurance: Also known as malpractice insurance or errors and omissions insurance, this category of insurance covers alleged professional negligence.
  • Commercial property insurance: This covers the costs of either repairing or replacing your business property such as equipment, real estate, and inventory.
  • Business interruption insurance: It’s generally included in your property insurance policy and it covers lost profits if your business was interrupted by either fire, windstorms, or any other covered event.
  • Cyber liability insurance: Third-party policies are covered if you are found responsible for someone else’s data breach and first-party cyber liability would cover response costs if your company suffered a breach.
  • Commercial auto insurance: This policy covers damages related to accidents linked to company vehicles.
  • Health insurance and life insurance: If these policies were provided to employees, the premiums can be deducted.
  • Unemployment insurance: This is something you can deduct based on the amount contributed to a state fund.

Premiums That Can’t Be Deducted

Some categories of insurance may not be deducted, which include premiums on disability policy, on a loan protection insurance, and what’s paid to a self-insured reserve.

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