It is here. We are now entering the tax season. So, what does this mean? If you own a business, then there are plenty of things you need to keep in mind when doing your taxes this year. There may also be several questions you will have along the way, especially when it comes to your insurance and if it is tax-deductible.
The answer is yes. Business insurance and many other expenses are tax-deductible. We will go into more detail about this below.
The best resource for your business when it comes to tax time is going to be the IRS. You can learn more about your deductibles and insurance premiums when you read through Chapter Six of IRS Publication 535.
Knowing what deductions you can take for your business insurance premiums may provide you with significant savings on your federal tax return.
The IRS allows the deduction of a business expense that is considered both "ordinary and necessary." An ordinary expense is one that is common for your business, and the necessary expenses are those that are helpful and appropriate for your particular business.
The following deductions are available for premiums that are paid for the following insurance types for your business:
Commercial Property Insurance. This insurance coverage is for fire, storm, theft, accidents, and other such losses.
Credit Insurance. If you have bad debts, this insurance coverage covers the losses as a result of that bad debt
Medical Insurance. If you have medical insurance of group hospitalization for your employees including long term care insurance, the premiums for these are deductible
Liability Insurance. This insurance coverage protects a business from a lawsuit that may be filed by a business associate, customer, or another third party.
Overhead Insurance. This insurance coverage helps pay for business overhead expenses during long periods of disability that has been caused by sickness or an injury
These are just a few of the tax-deductible insurance coverage types for business.
When to Deduct Your Premiums
When you choose to deduct premiums, it needs to be done for the tax year in which they apply. You can't deduct premiums in advance and you also can't deduct the entire premium during its first year in effect. For each of the three years, you have had your premium, one-third can be deducted.
Remember, tax deductions can vary and are often changed year to year. You also may not be eligible for certain deductions. Just because it is a listed deduction from the IRS, it does not mean that it necessarily is a deduction for you.
Importance of Commercial Insurance
Now that you know that some of the coverage for your business may be tax-deductible, you need to make sure you understand why you need commercial insurance in the first place.
It is especially crucial for small businesses to have and can protect a business against property damage, theft, liability, employee injury, and other losses. Without adequate insurance, your business may find it difficult to bounce back after an incident that results in these types of losses.
For more information on available commercial insurance policies, contact Panorama today and make sure your business has the coverage it needs.