Is SMB insurance tax deductible?
Can you write off small business insurance? The answer is “yes”. According to the IRS, expenses that are tax deductible include the cost of conducting a trade or business. Since business insurance premiums are a cost of operating your business, you can deduct them. The result could be significant savings on your business taxes.
According to the IRS, a business expense can be tax deductible as long as it’s:
- Ordinary — is pretty common in your type of business
- Necessary — must be considered helpful and appropriate for your business
Because most businesses are required to carry business insurance as per industry regulations, leases, or contracts, insurance premiums are considered to be both ordinary as well as necessary expenses.
Business insurance premiums are generally deducted in the tax year to which they apply whether you file annually or are required to also file quarterly estimated tax as well.
Write it off!
Small business owners have access to a wide variety of SMB insurance to protect them against a lawsuit or some catastrophic event. It’s important that your business have the right coverage for the type of business that you own. There are specific types of business insurance available to cover just about any situation that you could encounter as a small business owner.
The only gray area when it comes to tax deductions for small business insurance premiums involves health insurance premiums. If you own a small business, you may also be able to take tax deductions for medical, dental, and long-term care insurance for you and your family, but these premiums are deducted on your own personal tax return.
The right coverage
According to the IRS, a small business owner can usually deduct premiums for the following types of SMB insurance:
- General Liability
- Professional Liability
- Commercial Property
- Business Interruption
- Cyber Liability
- Workers’ Compensation
- Commercial Auto
You can usually deduct the amount of unemployment insurance that you contribute to a state fund, and you may also be able to deduct health and life insurance premiums if they are for your employees.
However, you usually cannot deduct:
- Premiums on a disability policy that covers lost income
- Premiums for loan protection insurance
- What you pay into a self-insured reserve
- Certain life insurance and annuities
If you own your own business, you’ve invested quite a bit of time and money into it, so you don’t want to lose your financial investment and have to close your business because you don’t have the right type of SMB coverage or the right amount coverage, especially since you can deduct your premiums and get a tax savings at the same time.
Daniel Fraisse, independent insurance broker and agent, can take the time and the hassle out of finding the best small business insurance options for you particular situation. Dan has been working in the insurance field for more than 30 years and is knowledgeable about all of the different types of business insurance that are available.
Call our office today to let Dan start working for your business.