Is Business Insurance Tax Deductible?

Business insurance is generally tax deductible.
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Is Business Insurance Tax Deductible?

Written by Brian Greenberg

Last updated: November 25th, 2022

Reviewed by Paige Geisler

Is Business Insurance Tax Deductible?

The IRS considers insurance a necessary cost of conducting business, which makes your premiums tax deductible. A few types of insurance-related costs, though, aren’t tax deductible.

How Do You Know if Your Business Insurance Is Tax Deductible?

The best way to know if your business insurance is tax deductible is to discuss the issue with your tax accountant. They can provide the latest information from the IRS and your state and municipal tax authorities to make sure you’re taking advantage of all the deductions available to you, including those related to insurance. They can also make sure you’re filing your taxes correctly to avoid penalties.

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What Types of Business Insurance Are Tax Deductible?

Any business insurance the IRS considers ordinary and necessary to engage in normal business activities is fully tax deductible. You can write off the full amount of your costs for the following types of insurance:

  • Commercial property insurance, which protects business property, buildings, and equipment, whether owned or rented
  • Vehicle insurance for all vehicles owned or leased by the company
  • Data breach insurance, which covers costs of notifying customers of a breach, remedying the breach, and hiring a public relations firm to protect your company’s reputation
  • Business interruption insurance, which helps replace your company’s lost income if you can’t conduct ordinary business due to a covered cause
  • Professional liability insurance, such as malpractice insurance, designed to cover claims of errors or omissions in your services
  • Group medical insurance for your employees
  • General liability insurance, which protects against customer claims of property damage or bodily injury
  • Workers’ compensation insurance, which helps employees with work-related illnesses or injuries
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What Types of Business Insurance Are Not Tax Deductible?

A few types of business insurance are not tax deductible. The IRS won’t allow your company to write off the following types of insurance:

  • Policies that cover loss of earnings not related to business interruption (for example, policies that cover loss of earnings resulting from disability or illness)
  • Insurance used to secure loans
  • Self-insurance reserves
  • Life insurance policies where the company is the beneficiary

Speak to your tax advisor to confirm which insurance premiums are deductible and which are not.

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How Can You Deduct Business Insurance Expenses?

The way you deduct business insurance expenses depends largely on the form of your business. Your accounting system also plays a role in your business insurance deductions.

If your company is a sole proprietorship, you should report business insurance expenses on Schedule C of your tax return, listing them in the Expenses section. LLCs with only a single member can also use this method.

Partnerships and LLCs with more than one member should report business insurance expenses on Form 1065, listing them in the Deductions section. Corporations should report business insurance expenses in the Deductions section of Form 1120.

Your tax professional can make sure you’re accounting for all your business insurance expenses properly and taking tax deductions for everything your company is entitled to.

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Key Takeaways About Business Insurance and Taxes

  • Most of your company’s business insurance expenses are tax deductible.
  • A few specific types of business insurance are not tax deductible because the IRS doesn’t consider them to be ordinary or necessary to doing business.
  • How you deduct your company’s business insurance expenses will vary depending on the structure of your business.

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