Business Tax Deduction - Life Insurance
Life Insurance is a fairly common and accepted part of the risk management of any good personal or business financial plan. It is not, however, a valid business tax deduction.
Business Tax Deduction - Life Insurance
In any personal or business financial plan, risk management plays an important part. Insurance is the primary mover in most risk management plans and the premiums paid for insurance on your inventory, physical buildings, and all types of liability are valid business tax deductions that can reduce your business tax liability. Life insurance is the one type of policy that is excluded from this. The premiums paid for Life Insurance policies are not tax deductible.
Other types of insurance could also include unemployment insurance and workman's compensation insurance. These common forms of business insurance are closely regulated and any funds spent on them are obvious tax deductions. The fact that most forms of insurance premiums are almost automatic business tax deductions often fools small business owners into thinking that their life insurance premiums are deductions also.
There is a good argument for this to be so. Small business owners especially are usually closely associated with the success or failure of their own business. In other words, if they die that usually spells the end of the business. This is the purpose, of course, of the small business owner wisely insuring his life. It is his hope that in case of his death not only will his dependents be protected, but the business will be able to survive his loss. Although this seems to indicate that life insurance is almost a business necessity for the small business owner, the tax codes and rulings of the IRS are what determines deductions.
There are some cases where life insurance premiums might be considered a business tax deduction. This would be when the small business purchases life insurance on some of their key employees. The risk management idea here is that the insurance is structured to provide funds for the process of replacement and training of these key employees in case of their deaths. The tax payer can not be the beneficiary of the policy, however.
Although life insurance premiums are not valid business tax deductions does not diminish its importance to sound financial planning. It also should not make the tax payer forgetful of the fact that every other type of insurance premium is considered a legitimate tax deduction.