In certain situations, insurance can offer a business--large or small--significant tax deductions. Since tax laws can and do change often, speak with your accountant or tax professional every year regarding any changes. Many businesses use insurance as a business tax write-off because it's something they need in addition to lowering their tax liability.
Buy liability insurance. It's treated as a general business expense and is tax deductible.
Buy group health insurance. It gives a business a tax deduction on all premiums paid. The premiums represent both a business expense as well as a benefit to employees.
Buy corporate-owned life insurance. Corporate-owned life insurance,or "COLI," is typically a whole life insurance policy purchased inside of, and owned by, a corporation. Although the qualifications and guidelines change often for tax deductability, the premiums are usually tax deductible. However, the IRS allows a deduction for either the premiums or the death benefit--not both--because in most cases the corporation is receiving the death benefit. For the death benefits to be considered income tax free, the insured or insureds on the policy must be made aware that they are covered in the policy. Also, the insureds must be either a 5 percent owner in the company, a director earning more than $100,000 in the company, among the highest paid 35 percent of company employees, or one of the corporation's five most highly paid officers.
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