When you’re getting insurance for self-employment or run a small business, you might be wondering: is life insurance tax deductible? After all, the company likely relies on your wellbeing to succeed.
In a similar vein, health insurance premiums can typically be used as a business expense deduction. But unfortunately, there are only a few narrow situations where life insurance is tax-deductible for self-employed individuals.
Find out how business life insurance works and how you can deduct life insurance premiums as a business expense.
Are life insurance premiums tax deductible as a business expense?
In most cases, life insurance for business owners is not tax deductible. Even if you’re self-employed, you cannot subtract your premium payments from your total income each year.
As a business owner, however, you can offer life insurance policy coverage as an employee benefit. In this instance, the premium payments could be tax-deductible depending on your business classification status.
If you have a C corporation, there is no such thing as a life insurance business expense as the IRS prohibits taking any type of deduction on life insurance premiums. So is life insurance tax deductible for other types of businesses? Keep reading to find out.
Can you deduct life insurance premiums as a business expense for S-Corps & LLCs?
The short answer is: yes, it’s possible to utilize a life insurance business expense as an S corporation or LLC. However, there are some stipulations in order to take advantage of a life insurance tax deductible business expense.
First, in order to be eligible, the company must offer a life insurance policy as an employee benefit via a group plan. If the plan is only available to executives, then the premiums must be reported as wages. And anytime the coverage reaches $50,000 or more, that amount must also be listed as wages on the employee’s W-2.
Another restriction is that you can’t deduct life insurance as a business expense if you are the beneficiary of the employee’s policy. So, for instance, a married couple running an S-corp together couldn’t deduct their life insurance premiums if they list each other as their policy beneficiaries.
Note: At this time, Ethos does not offer group life insurance plans. This information is shared for those balancing the type of individual policies that Ethos offers versus group plans offered through an employer.
