Is Business Insurance Tax Deductible? | Insureon (2024)

According to the IRS Business Expenses guide, you can deduct the ordinary and necessary cost of insurance coverage as a business expense. That could include the following types of business insurance:

• General liability insurance. This policy covers legal expenses when your business is sued over third-party bodily injuries on your property, property damage, and advertising injuries.
• Professional liability insurance. Also called errors and omissions insurance or malpractice insurance, this policy covers lawsuits over your business's alleged professional negligence.
• Commercial property insurance. This compensates you for the cost of repairing or replacing your damaged or lost business property (e.g., real estate, equipment, inventory, etc.).
• Business interruption insurance. Usually part of your property insurance policy, this covers your lost profits when your business is shut down because of fire, windstorms, or another covered event.
• Cyber insurance. Third-party cyber liability policies cover lawsuit expenses when you're responsible for someone else's data breach. First-party cyber liability can cover response costs when your business suffers a breach.
• Workers' compensation insurance. Employers are required to carry a certain amount of workers' comp coverage in most states. It pays your employees' medical expenses and disability benefits after a workplace injury or illness.
• Commercial auto insurance. This policy covers liability and property damages associated with accidents in business-owned vehicles, and is often required in most states. Note: You have to choose between this deduction and the standard mileage rate deduction. You can't have both.
• Unemployment insurance. You can usually deduct the amount you contribute to a state fund.
• Health insurance. This policy's premium can be deducted if it's for employees.

Generally speaking, you can deduct your insurance premiums if those policies benefit the business and serve a business purpose. However, you may run into a gray area if you're a sole proprietor or independent contractor who wants to deduct health insurance premiums. In some situations, you may not be able to.

That's why we recommend you work with a tax professional. They know all the conditions that must be met when you file your taxes, whether you work solo or run an LLC or S corporation. Miscalculated deductions are usually a red flag for audits, which is why it's important to get it right the first time.

For worksheets that help you calculate deductions, you can turn to the Internal Revenue Service (IRS):

• IRS Form 1040
• IRS Publication 334

IRS Publication 535 was discontinued after the 2022 tax year.

There are some types of insurance premiums you usually can't deduct:

• What you pay into a self-insured reserve (some big businesses use these reserves instead of carrying workers’ comp coverage)
• Premiums on a disability insurance policy that covers your lost income
• Premiums for loan protection insurance
• Premiums on life insurance policies, even if it's for employees

Of course, when it comes to taxes and tax returns, nothing is written in stone. Be sure to talk over these items with your tax advisor if you have any questions.

Complete Insureon’s easy online application today to get small business insurance quotes from top-rated U.S. companies. You can also speak with a licensed insurance agent at any time. Once you find the right policy for your small business, you can begin coverage and receive a certificate of insurance (COI) in less than 24 hours.

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