Business owners often wonder whether the cost of insurance is tax-deductible. The good news is that many types of business insurance qualify as deductible expenses under IRS guidelines. According to the IRS, premiums for insurance that are “ordinary and necessary” business expenses can typically be deducted.
Deductible Insurance Premiums
The following types of business insurance are usually tax-deductible:
- Commercial property insurance: Covers damage to your business’s property.
- General liability insurance: Helps with expenses related to third-party injuries or property damage.
- Cyber insurance: Covers losses from data breaches and other cyber incidents.
- Business interruption insurance: Provides coverage for lost income if your business is forced to close temporarily.
- Professional liability insurance: Helps with legal costs if a client claims your services were negligent.
- Workers’ compensation insurance: Covers medical expenses and lost wages for employees injured on the job.
- Commercial auto insurance: Covers damages related to the use of business vehicles.
Nondeductible Premiums
Not all insurance premiums can be deducted. For instance, premiums for life insurance where the business owner is the beneficiary, or insurance for lost earnings due to sickness or disability, generally cannot be written off. Additionally, self-insurance reserves are also nondeductible.
Since tax laws can be complex, business owners should consult with tax professionals to ensure they are claiming the appropriate deductions.
To learn more about deductible insurance premiums and other tax-saving strategies, contact McHugh Insurance Group.