How to Deduct Business Insurance Expenses

Deducting Business Insurance Expenses
Deducting Business Insurance Expenses. Peter Dazeley/Getty Images

Costs you pay for most kinds of business insurance are deductible for tax purposes on your business income tax forms. In this article, we'll look at the various types of business insurance and their deductibility. You can also find out where to deduct these business insurance expenses, depending on your business type and tax form. 

Business Insurance Expenses You May Deduct

You may deduct expenses for insurance premiums if they are business-related.

Deductible business insurance premium expenses include:

Casualty insurance (protection against property damage)

General business liability insurance

Professional liability and malpractice insurance. Although malpractice insurance is taken out by the individual professional, this insurance is a requirement of the business and can be deducted as a business expense. 

Key person life insurance on company officers and executives. This assumes that the company is the beneficiary, not someone like a spouse or other non-business person. 

Business interruption insurance. This is insurance that pays for losses if you are not able to do business after a disaster or accident. 

Workers compensation insurance. Workers compensation is paid by the business to provide coverage fo employees for on-the-job illnesses or injuries. 

Insurance on business-owned vehicles. You may only deduction the portion of the insurance premium applicable to business use of the vehicle.

 If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums.

Product liability insurance

Performance bonds or fidelity bonds. This includes fidelity bond coverage for employee theft and performance bonds for construction contracts. 

Group health care insurance coverage for employees, if your business meets specific qualification requirements.

 

Contributions to a state unemployment insurance fund, but the IRS requires that these payments must be "considered taxes under state law."

If you have a home based business, you may deduct a portion of the property insurance on your home that is related to your home office space.  

What You May NOT Deduct for Business Insurance

You may not deduct the cost of life insurance for anyone associated with your company if you (the owner) are the direct or indirect beneficiary. 

You may not deduct disability insurance premiums on yourself (as the owner). 

Where to Show these Business Insurance Expenses

  • For sole proprietors and single-member LLCs, show these expenses in the "Expenses" section of Schedule C on Line 15. 
  • For partnerships and multiple-member LLCs, show these expenses in the "Deductions" section of Form 1065
  • For corporations, show these expenses in the "Deductions" section of Form 1120.

Special Notes:

If your business operates on a cash basis, you may only deduct insurance premium payments applicable to that year. For example, if you pay premiums in November 2015 for six months, you may only deduct the November and December 2015 portion of that premium on your 2015 business taxes. (Of course, the balance would be deductible on your 2016 business taxes.)

For More Information on Business Insurance Deductions

See IRS Publication 15B for more information on specific employee benefits.

See IRS Publication 335, Chapter 8 for more information on business insurance deductions. 

Disclaimer
This article presents general information to help you in a discussion about business insurance expenses. These issues are more complicated than a simple listing. Before you attempt to take deductions for these expenses, consult with your tax professional.