June 23, 2021
Blog Do you operate a for-profit business? Do you pay for insurance mandated by the IRS?
Looking for deductions around tax time (of course, you are!)? Did you know that the IRS allows you to deduct certain kinds of business insurance expenses come tax time?
In this post, you’ll learn more about business insurance and which expenses you may deduct, according to Uncle Sam, around tax time.
Deducting Business Insurance
A typical business expense the IRS permits you to write off types of business insurance. As an owner, you may deduct the cost of the insurance if you use it for your company.
As a business owner, the IRS requires you carry insurance for these reasons:
- State regulations
- Contract laws
- Industry regulations
One reason is for worker’s compensation insurance, a type of business health insurance. Another is disability benefits. If your state requires you to provide this to your employees, you may deduct it from your taxes.
You May Write Off Business Insurance Premiums
You may deduct certain business insurance premiums that protect your business, including the following:
- General liability insurance
- Data Breach insurance
- Worker’s compensation insurance
- Commercial property insurance
- Professional Liability insurance
These main types of insurance are necessary and standard for your business. For this reason, you often can deduct the entire cost of your premium.
Are you a small business owner? If your answer is yes, you need to know these additional facts related to worker’s compensation insurance.
Other Business Expenses Aside You May Write Off
There are other items considered common and necessary that you may also deduct off your taxes as a business expense. Among them include the salary you pay your employees.
You may also deduct retirement plans you contribute to as well as taxes, rent payments, and interest payments.
Taxes: One of the business expenses you may deduct come tax time is the taxes you pay. Do you pay local, state, federal, or foreign taxes? Well, you may write them off as a business expense.
Rent payments: Another item the IRS allows you to deduct is the rent for your office building. You may even deduct the rent for a home office.
To write your rent off as a business expense, you must use it solely for your business. However, you may not deduct the rent if you receive equity from the property even when you’re making monthly payments.
Interest payments: You may already know you may deduct interest you’re paying on loans. To be allowed to deduct interest as a business expense, the loan must be used solely for your company and not for any other reason, such as a home remodel.
Shared Business and Personal Expenses
You need to know the difference between business and personal expenses. Sometimes the two overlap.
Know that the government will not allow you to deduct living, family, or personal expenses. However, they will allow you to deduct home office expenses.
And be aware the entire cost of your business costs may not be deducted. Here’s where it gets tricky: when you use an item for both business and personal use, you may take off a portion of the cost used for your company.
Technology Equipment
For example, when you own a printer and use it for your business, you may write the cost of the printer by determining the life of the printer. That means if you expect the printer to last for two years, you may deduct half of the cost per year.
On the other hand, if you or someone else in your home uses the printer say for personal use 30% of the time, you may only deduct the remaining 70% used for your business. Divide that number in half for two years for the life of your printer.
Your Home Office Expenses
Is your business located in your home? Do you use a separate area of your home for your business? Then you may write off the following costs on your taxes if you don’t use the space for personal use.
- Insurance
- Utilities: Electricity, water, and heating costs
- Mortgage Interest
Know that you may deduct only the portion of the house used for these expenses and not the entire home.
Motor Vehicle Expenses
Do you use your car for client meetings? Or to pick up supplies or merchandise from vendors? You can deduct a portion of these costs for business expenses if you also use your car for personal driving.
If you bought a car or truck to use for business, then you may deduct 100% of the costs. These include gas, repair costs, and maintenance costs. Just divide the costs per mileage.
When You Can’t Write Off Business Insurance for Tax Purposes
You may not deduct all business insurance premiums as a company expense. When your insurance policy isn’t deemed necessary and common, it may not be deducted and won’t qualify as a business expense to the IRS.
If your insurance policy covers earnings due to an illness or a disability, you can’t write either off as a business deduction. Self-insured reserves may not be written off either.
Does your insurance policy cover a business loan? If the answer is yes, you can’t deduct it from your taxes.
Getting Back Some of Your Money Spent
After reading this article, you should have a clear idea of what business insurance expenses you may deduct from your taxes. And which you may not. Writing off these business expenses can help you put more money in the bank.
Are you a Florida business owner who needs workers compensation insurance for your company? Contact us today to learn about your options and compare which carriers offer the best deal for your company.
