Can Business Insurance Be Written Off?

 

We sometimes hear questions from businesses here in the Greensboro area regarding business insurance and whether or not it can be written off your taxes.  According to the IRS, expenses are fully deductible, including insurance premiums, if they fit the following criteria:

1. The business must be operated "for profit"
2. The insurance costs being deducted must be for insurance that is "both ordinary and necessary"

An ordinary business expense is one that's commonly accepted in your industry.  A necessary business expense is one that's viewed as being appropriate and helpful for your business.

Business Insurance Premiums

According to the IRS, as a business owner, you can deduct the the necessary and ordinary cost of insurance premiums if the insurance is for your business.  There are a number of common business insurance policies that qualify, including:

• General Liability Insurance
• Professional Liability Insurance
• Commercial Property Insurance
• Data Breach Insurance
• Workman's Compensation Insurance and more

These are all policies designed to help protect your business and, if they are considered necessary and ordinary in your particular industry, then the full costs are likely deductible.

Seek a Tax Professional

There are a number of business insurance costs that may be tax deductible and certain policies don't qualify as being deductible.  The best advice is to seek the counsel of a tax professional to determine the difference.  This will help take the guesswork out of which insurance you carry and which are considered actual business expenses.  

If the insurance coverage you want to write off isn't considered necessary and ordinary by the IRS, then they won't consider it a business expense and it can't be written off.  The following types of insurance generally cannot be written off:

• Policies that are designed to help cover lost earnings due to disability or illness
• Life insurance policies
• Self-insured reserves
• Policies taken out to help secure a loan

Business vs. Personal Expenses

While there is no allowance for deducting personal or living expenses, some things used for business and personal use may be partially deductible on your taxes.  An example of this would be your car insurance if you use your car for both personal and business use.  Keeping track of your mileage, you can calculate the percentage you've used your car for business during the year, then at tax time deduct that percentage of your insurance premium cost.  Business use of your home may also provide a partial deduction.

Are Homeowners Insurance Payouts Taxable?

 

When receiving homeowners insurance payouts after an insurance claim has been settled, sometimes our Greensboro area clients question whether or not those payouts are taxable.  The answer is generally "no," insurance payouts are not taxable, with a few exceptions.

Not For Profit

Insurance is designed, as is said in the industry,  to "make you whole."  This simply means that an insurance payout on your homeowners policy is meant to put you back where you were before suffering the loss for which your claim has been made.  Homeowners insurance is not intended to compensate you for any more than you had before your loss was experienced and your claim was made and paid.  In fact, for a risk to be considered insurable, the opportunity for loss must be present but the opportunity for financial gain must be absent.

Taxable Homeowners Insurance Payouts

An exception to the non-taxability of homeowners insurance payouts relates to homeowners suffering a loss who decide to do the necessary repairs themselves.  The question of whether or not you're allowed to do your own repair work is basically up to your insurer.  They may be more likely to allow this for a relatively simple job that doesn't require some specialized skill such as that for plumbing, electrical or re-roofing work.

A few caveats regarding doing your own repairs for an insurance claim:

• You may not save much money by doing your own work on an insurance claim
• You may need to be licensed to carry out certain work such as plumbing or electrical
• Work that doesn't turn out as planned may face additional costs that your insurer won't cover
• If you're carrying a mortgage on your home, your mortgage lender likely has a say in who performs the repair work on your home.
• Your insurer will likely inspect and value the damage for which you're submitting a claim.  Once this is done, get an estimate from a professional contractor who may spot damage not obvious to you.  Get them to provide a professional estimate for repairs, which you can use when negotiating with your insurer for your final payout.

Labor Costs May Be Taxable

Once your insurance payout has been made, any amount over and above the cost of material for the repairs may be considered labor, which was provided by you.  In the eyes of the IRS, this money may be seen as taxable income to you.

Car Insurance Trackers: What Data is Tracked?

 

Many vehicle insurance companies are now offering policy price discounts for clients who volunteer to equip their car or truck with an insurance tracking system.  Historically, car insurance companies have relied on various demographic information in order to determine the likelihood of a policy applicant making future claims.  This began with the creation of tables, known as actuarial tables, notating the number of vehicle accidents by location, by driver's gender, age, type of vehicle and more.

Then, when you were applying for insurance coverage, your personal driving history, including driving infractions and any past claims, were added to those statistics.  Driving history proved to be a good indicator of future potential claims.

While these actuarial tables remain an important part of your car insurance underwriting, determining whether or not to sell you a policy and at what premium rate, car insurance trackers add another level of accuracy to this process.

What is a Car Insurance Tracker?

Car insurance trackers were first introduced in the U.S. by Progressive Insurance Company in 1998.  Progressive's program, called Snapshot, is what's known as usage-based insurance.  It personalizes your car insurance premium rate based on the way you actually use your vehicle.  You pay according to the data collected by your tracker, which is sent to your insurer and analyzed to determine your driving habits.

Many auto insurance companies offer usage-based programs.  Most provide an immediate discount to your policy cost simply for signing up to participate in the program.  You then get a personalized premium rate at renewal time, depending on the results of the analysis of your driving habits.  While there's the potential that your premium rate may increase if it's found that your driving behavior shows increased risk, most drivers experience lower policy costs at renewal time.

What Data is Tracked?

There are two ways for data to be tracked: one is with a dongle that plugs into your car's computer via the OBD-II port and the other is through an app loaded onto your smartphone.  Once collected, the data is sent wirelessly to your insurance company for analysis.

Insurers are interested in information that indicates your typical driving habits, particularly those that show risk of potential claims.  Data collected by the tracker system may include:

• Hard acceleration
• Hard braking
• Speeds driven
• Fast cornering
• Use of handheld device while driving
• How often you drive, for how long and what time of day

How Do Car Insurance Tracking Devices Work?

 

Car insurance tracking devices are a great piece of technology, not only for drivers who use them but for companies that insure those drivers.  Also known as "telematics," vehicle tracking devices have been popular with many insurance companies since the late 1990's, with Progressive Insurance Company pioneering efforts in the U.S. to get these devices used in cars driven by their auto insurance policyholders.

What are the Benefits?

For insurers, the benefits of having tracking devices operating in their policyholders' vehicles include:

• Letting the insurance company know how safe of a driver you are by collecting data on such things as harding braking, fast acceleration, aggressive cornering and speeds driven.
• Letting the insurer know how much you drive, what times of day your car is being used, where it's being parked overnight and whether you're using your cell phone while driving.

All of the above-listed data give a picture of your driving habits and your likelihood of engaging in behavior that may cause you to be prone to be involved in an accident.

Benefits to you as a driver with telematics operating in a vehicle include the collection of data that can potentially help you to become a safer driver.  Learning how to overcome your tendency for fast acceleration and other forms of aggressive driving can help save you money not only on your insurance policy premium costs but also your fuel usage.

How it Works

There are two types of auto insurance trackers.  One is a dongle that plugs into your vehicle's On-Board Diagnostics II (OBD-II) Port, which is where your mechanic accesses data from your vehicle's on-board computer.  The other method for activating an on-board tracker is to load a special app onto your smartphone, which you must then carry in your car when driving.  The data collected by these two tracking methods is then sent to your insurance company where it can be analyzed.  Many insurance companies will give you an immediate discount on your policy premium cost when you sign up for their auto-tracking program.  Others will wait a predetermined amount of time to analyze your driving habits before deciding whether to offer you a discount and for how much.

Some Additional Benefits

Additional features some trackers provide include contacting emergency services in the event of a collision even if, as the driver, you're unresponsive.  They can also send roadside assistance if your car breaks down.