Tax Deductible Insurance: The Facts

Imagine looking over your expenses from the year, and you calculate not only no refund, but you owe a hefty sum. Your small business is doing well, but not well enough that it can take a heavy tax hit or any other easy mistake. What can you do? Did you take tax-deductible insurance into account?

 

The savvy business owner works to get the most out of their return. Whether you use a tax app or are a pen-and-paper warrior, each person must hunt for every last tax deduction available to them. This helps puts money back in your business, and money in your business is an investment in its success.

adults brainstorming with post-its on a board
Brainstorm when you can about deductions for your business. A penny saved is one more in your pocket.

 

So, how can you get ahead of the curve? For the self-employed, the small business owners, and even larger companies, certain tax information can be murky. Uncovering the mysteries of insurance premiums and how they fit with taxes can help lower your payments come tax season.

Insurance is a Cost of Business

The IRS’s 2018 Publication on Business expenses states, “You generally can deduct the ordinary and necessary cost of insurance as a business expense if it is for your trade, business, or profession. However, you may have to capitalize certain insurance costs under the uniform capitalization rules.” This means money spent that was necessary to keep the business running necessary business running can be deducted. It also allows for a process called “capitalization” for certain expenditures, which means transforming your insurance premiums from a business “expense” to a business “cost.”  The difference between these two is that an expense refers to the usage of an item, whereas a cost is purely money spent.

 

So, now the IRS has given you the go-ahead. You can take stock of your premiums and capitalize them if needed. When filling out your tax forms, make sure you place the correct amount spent for the year.  For example, on a 1040 form, lines 46, 61, and 69 will be used to report your insurance expenditures. 

 

These examples can be used by the self-employed as well. It comes down to locating which coverages you have, how much you spent on them, and if the premiums are deductible. Let’s look at what premiums make the biggest impact on your tax statement.

Only Some Insurance Is Tax-Deductible

You can start crossing off expenses and reducing your tax payment, putting more capital back into your company’s financial reservoir. Here are the premiums that are deductible:

business notes on insurance and other expenses
Take good notes for these deductions. Tax forms will need accurate information. Celebrate your savings!

 

  • Fire, theft, accidents, storm, or losses similar to these categories
  • Business interruption
  • Group Health/medical
  • Long-term care 
  • Credit insurance coverage against bad debt
  • Liability
  • Worker’s Compensation
  • Malpractice

 

Other items of note are life insurance, vehicle insurance, unemployment funds, or overhead insurance.  Life insurance can be useful here only if it covers you under contract. For your vehicles, they can be deducted (even if one is for personal use) only when used for the business. The payments to the unemployment fund are only counted in this list if they are approved by your state of residence. Also, the overhead insurance comes into play if you have used it for a long period due to a disability. 

 

Non-Deductible Premiums

  • Payments made for a self-insurance reserve
  • Loan security
  • Earnings Loss
  • Life insurance/annuities not covered above

 

Another good rule to note is that if you paid for a premium in advance, this is not considered suitable for the current tax year. Remember, if you take out a premium for five years, each year only one-fifth of the payment can be used to offset your expenses. So you can not deduct the entire premium in one year since you are using it over the course of five.

person calculating numbers and stats for their company
You’d be surprised the intricacies of this process. Don’t worry! Follow our lead, and you’ll be ahead in no time.

If you are a sole-proprietor or self-employed, there is more good news for you. Your payments for coverages like medical, dental, and long-term care can be included as an expense. However, this is not the case if you “could” have been covered by your spouse for a certain time in the year. If they see you had the option, they will not take the deduction on your taxes.

 

In most cases, your business’ essential premiums are considered tax-deductible insurance, so they will be useful come next season. Using the list provided, you can cut down on business costs and fill out that revenue line. What could be better than being covered and saving money?

 

EZ.Insure is help both you and your business. Your agent will answer any questions you have, compare different plans for you, and even sign you up when you’re ready, free of charge and without having to worry about being hounded by endless calls. To get started simply enter your zip code in the bar above, or you can speak to an agent by emailing replies@ez.insure, or calling 888-350-1890. EZ.Insure makes the entire process easy, and quick.

Republican Tax Bill Cuts 25 Billion From Medicare

The GOP tax bill that the Republicans have been working on, can lead to major cuts in Medicare funding and spending in 2018. The bill is estimated to cut $25 billion from Medicare starting 2018, and resulting in $400 billion over the next ten years.

The Congressional Office has estimated a $1.5 trillion deficit to over the next 10 years due to the tax bill.

In 2010, Washington passed a “pay as you go” rule which requires any new laws to be deficit neutral. Basically if there is not enough economic growth to balance the money lost, then the Office of Management and Budget has to cut spending. Unfortunately, it is likely that one of the spending cuts will be to Medicare.

The tax bill is expected to pass, and while it does not exactly say that it will cut spending on Medicare, it will be an unintended result. Some Republicans stated that the cuts would affect doctors, health providers, and hospitals, not Medicare beneficiaries. They have also had talks to try and change the Medicare eligibility age from 65 to 67.

House Speaker Paul Ryan seems to threaten cuts to Medicare saying “we’re going to have to get back next year at entitlement reform, which is how you tackle the debt and the deficit. I think the President is understanding choice and competition works everywhere, especially in Medicare.”

A major issue with the possible cuts is that Medicare beneficiaries could end up being kicked off of their current Medicare plan, or receive fewer benefits.

Juliette Cubanski, associate director of the Program on Medicare Policy at the Kaiser Family Foundation says,“these cuts could be one bad side effect of this tax legislation. Many providers may be able to absorb the payment reductions if they have a very diverse patient base. But others who rely primarily on Medicare may find this cut really difficult to deal with.”

Roughly 54 million Americans currently receive Medicare benefits. Many fear the cuts will leave many Americans without coverage or unattainable expense to have coverage. However, McCarthy claims lawmakers will find a way to avoid the Medicare tax cuts. The tax bill is expected to be voted on in early January, when we will begin to see the effects of the bill.