Are Life Insurance Premiums Tax Deductible?
You pay life insurance premiums to protect the integrity of your loved ones upon your passing. The cost can get pretty high, especially if you total it up over the years. Many taxpayers hope that they can write off this personal expense on their tax returns. Unfortunately, it’s not a tax-deductible expense in most cases. Of course, you should consult with your tax advisor before you make any decisions, but in most cases, your life insurance doesn’t help lower your tax liability.
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Individual Life Insurance Premiums
Almost across the board, individual life insurance premiums are not tax deductible. The IRS looks at the expense as a personal expense, which you can’t write off. Even if you own your own business and buy life insurance through the business, you cannot write the expense off. The IRS doesn’t look at this as an expense that is crucial to doing business. In other words, you are on your own with that expense. The only way around this rule is if you bought life insurance specifically to protect your business’ assets. If this is the case, you must consult your tax advisor to see how to go about it.
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Business Life Insurance Premiums
If you pay life insurance premiums for your employees, you may be able to deduct those expenses. This will only be the case if you don’t stand to benefit from the policies in any way. The most common way this would be an issue is if you work for a spouse or another family member and you are the beneficiary on the policy.
You have to be able to prove that the policy is strictly a benefit for your employees. You must also prove that you provide the same benefit for all employees, not just certain employees in the company. There can’t be favoritism or you can’t pick and choose from your employees. It has to be a policy you offer everyone if you want to deduct the premiums.
In short, you can’t write off life insurance premiums unless you are an employer that pays for your employees’ life insurance for them. Even in that situation, there could be ways that the IRS would prevent you from using this tax deduction. As always, make sure you review the situation with your tax advisor to determine if you can write off the expense on your taxes.
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