Business Insurance Premiums Lead to Tax Savings

Business insurance premiums are considered as deductible premiums for those, whose business insurance policy consists of workers compensation insurance, disability insurance against loss of income and the professional indemnity insurance. This is because Internal Revenue Service (IRS) has caught on to different types of tax avoidance schemes for insurance premium deductions. If your business wants to set up separate entities to reduce liability risk, you will need to consult a tax professional to discuss about premium deductions.

Tax office allows a business premium deductions for theft, fire, commercial business auto, public liability, loss of profits even though the insurance may cover capital assets, etc. It is also published that no tax deduction is available for premiums payable on savings, investment, endowment and life insurance policies.

There are two general rules that are applied to the premium deductions. The insurance premium must be in the benefit of the business purpose. The business insurance must benefit all the employees, managers and owners of the business, but the premiums that are paid only for the owners benefit are not considered as deductible.

There is a general list prepared by the IRS, for the premium deductions and exclusions, which are subjected to any number of exceptions. The IRS will also issue advisory opinions, that define specific deductions. The higher the deductible, the lower the premium and viceversa.

Recently, the tax office has specifically stated that the employees are allowed a tax deduction for annual premiums paid on an income protection policy or disabled insurance policy against the loss of income. Business insurance premiums are necessary and are important cost of doing business. So, it is advisable to consult your insurance professional regarding the deductible premiums for tax savings.

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