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“Life Insurance as a Business Expense: What You Need to Know Before You Buy”

Ways life insurance can be used as a business expense

Are Life Insurance Premiums Deductible As a Business Expense? Understanding the Tax Implications of Life Insurance Premiums.

Typically, life insurance premiums are not tax-deductible because they are considered a personal expense, similar to other forms of insurance such as home or car insurance. However, there are some exceptions to this rule. For instance, if you’re self-employed and purchase life insurance as an expense for your business to protect business assets, you may be eligible to deduct the premiums from your tax returns.

Some examples of business assets that you may want to protect with life insurance and other scenarios where you may be able to claim as a tax deduction are:

  1. Office space, equipment, furniture, or inventory that you own or lease
  2. Purchasing a 162 Executive bonus plan used to provide key employees with life insurance that builds cash value who contribute to the business success that you cannot afford to lose
  3. Business loans or other debts that you are personally liable for
  4. If you are a small business owner and you offer group term life insurance to your employee, you may be allowed to deduct the premiums you pay for up to $50,000 of coverage per person.
  5. If you transfer ownership of your life insurance plan to a qualified charity you may be able to deduct premiums that are paid
  6. If you have an alimony agreement that was made prior to 2019 and required you to purchase life insurance for your ex-spouse you may be able to deduct these premiums

Does the type of Life insurance policy: Term, Universal Life, or Whole life possibly affect whether the premium can be used as a tax deduction?

In most cases term life insurance premiums are more likely to be deductible versus whole life or universal life premiums, simply because the do not have a cash value component.

But there are a few exceptions:

  1. As mentioned earlier if you use a 162 executive bonus plan to provide individual life insurance coverage for a key employee or employees you may be able to deduct the premiums regardless of the type of policy as long as the employee reports the money paid for this policy as taxable income
  2. Also, as mentioned earlier if you transfer the ownership of your life insurance policy to a qualified charity, you may be able to deduct the premiums or policies cash value whichever is the least, regardless of the type of life policy.

These are some of the possible scenarios where life insurance premiums may be tax deductible. However, the tax rules and regulations are complex and may change over time, so it is advisable to consult a tax professional before claiming any deductions related to life insurance. For more information about life insurance planning either for personal or business expenses Contact our office today!

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