Is Business Insurance Tax Deductible?

Business Insurance Is Tax Deductible

“Is business insurance tax deductible?” It’s a question many people wonder. And generally, yes, business insurance is tax deductible. For instance, if you’re operating a for-profit company, your business expenses, including insurance, can be deducted from your taxable income if it is both ordinary and necessary.

An ordinary business expense is common and accepted in your business or industry. A necessary business expense is helpful and appropriate for your business or industry. The expense does not have to be considered necessary.

As a business owner, you can deduct the ordinary and necessary cost of a business insurance policy as a business expense if the insurance policy is for your business, according to the IRS.¹

Most businesses are required to carry some type of business insurance because of state laws, industry regulations or contracts. For example, small businesses with employees in New York City have to provide disability benefits and carry workers’ compensation insurance. Because of this, the required insurance policies fall under the ordinary and necessary rule by the IRS and a business owner can write it off.

To learn more about business tax deductions, you can work with a tax professional. They can help answer any financial questions that pop up.

Writing Off Your Business Insurance Premiums

Several types of business coverages are tax deductible, including:

Commercial property insurance to help protect your owned and rented business property like your equipment, building and tools.
Data breach insurance for help responding to a data breach. This coverage helps pay to notify impacted customers, patients or employees. It also helps pay to hire a public relations firm.
Professional liability insurance for help covering claims of errors or omissions in your products or services. This coverage is similar to malpractice insurance.
General liability insurance, which helps protect your business from claims of bodily injury or property damage that comes up during normal business operations.
Workers’ compensation insurance to help provide benefits to employees with a work-related injury or illness.
Business income insurance, also known as business interruption insurance, helps replace lost income if your business is unable to operate due to a covered property damage.

If you have any of these insurance policies to help protect your business, you may be able to write the premiums off. If the insurance policies are common and necessary for your business, you can write off the full amount.

Tax Write-Offs: Personal vs. Business Expenses

When it comes to tax write offs, there’s a difference between personal and business expenses.

The IRS rules state that you can’t deduct personal, living or family expenses. The full cost of business expenses can be deducted.

However, if you purchase something that’s used for both personal and business reasons, you can divide the cost appropriately and write off the business portion. For example, if you purchase a new computer system that you plan to use for the business 60% of the time and personal use the other 40%, you can generally deduct the 60%.

Here are some common scenarios where you may use something for both personal and business reasons:

If your business is in your home, you may be able to write off certain expenses for the business such as mortgage interest, insurance, utilities, repairs and depreciation.
If you use your car for business and personal use, you can write off the part that is used for business purposes. You can do this by dividing the expenses based on actual mileage.

What Type of Insurance Is Tax Deductible?

If you pay health insurance premiums and medical expenses out-of-pocket, they’re tax-deductible. A tax professional can help you determine if you can deduct insurance premiums and what the standard deduction will be based on your financial situation.

More Types of Business Expenses That You Can Write Off

Aside from business insurance, there are other items that are necessary and common with your business and industry that could be written off as a business expense.

The IRS allows business owners to deduct the pay given to employees for the services they perform. You can also deduct retirement plans that are offered to you and your employees.

Here are some other business expenses you can write off:

Rent Expenses: You can deduct rent payments if the rent is for the property you’re using for your business. If you’re making a payment each month and you receive equity in the property, the rent is not deductible.
Interest: The interest you’re paying on loans used for your business can be deducted as a business expense.
Taxes: The federal, state, local and foreign taxes you pay for your business can be written off as a business expense.

What Kind of Business Insurance Cannot Be Deducted?

Not every business insurance premium can be written off as a business expense. If the insurance policy you want to write off isn’t ordinary and necessary, then the IRS won’t consider it a business expense.

Premiums paid for an insurance policy that help cover the earnings lost due to a sickness or disability or life insurance policy can’t typically be written off as a deduction. The amount you pay to set up a self-insured reserve also won’t be considered a business expense. Policies that you pay for to help secure a loan also cannot be deducted.

For a list of insurances that can and can’t be written off as a business expense, review the IRS guidelines.

Can You Write Off Car Insurance on Taxes?

Can you write off car insurance as a business expense? In most cases, self-employed individuals can deduct their car insurance premium. You can also deduct car insurance if you’re in the armed forces reservists. To deduct your car insurance on taxes, you can use the standard mileage rate to keep track of how many miles you drive. Each year, the IRS sets the standard mileage rate you can use.

Business Insurance Deductions: Seek a Tax Professional

Is insurance tax deductible? Once you’ve worked with an insurance company to get the coverages you need, you can then work with a tax professional about which policies can be written off as a business expense.

With tax day 2024 around the corner, working with a tax professional can take out the guess work when it comes to which types of insurances are considered a business expense and can be written off as a deduction. And if you have any financial questions, the tax professional can likely answer them.

When it comes time to review your finances, a tax professional can take a look at how much revenue your business brought in and how much you owe in taxes. If you think you want to write off the premiums you were paying for your data breach insurance as a business expense, a tax professional can tell you whether it’s possible and how much you can write off. They can also help you with itemized deductions.

To learn more about business insurance coverages you need, get a quote today. We’re an insurance company that’s been helping small businesses get the coverage they need for over 200 years.

Last Updated: June 14, 2022

¹ Internal Revenue Service (IRS), “Publication 535 (2021), Business Expenses

This article provides general information, and should not be construed as specific legal, financial, insurance, tax or accounting advice. As with all matters of a legal nature, you should consult with your own legal counsel and tax professionals. The Hartford shall not be liable for any direct, indirect, special, consequential, incidental, punitive or exemplary damages in connection with the use by you or anyone of the information provided herein.