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.