Are life insurance proceeds taxable?
While you generally can’t deduct life insurance premiums as a business expense, there is a major tax advantage for the beneficiary when a policy actually pays out upon the policy holder’s death. However, that’s because the proceeds are typically not included in the individual’s gross income, meaning they don’t have to pay any income tax.
This differs from an inheritance, which may be subject to estate taxes, depending on the amount. This is one reason why life insurance can be an important consideration for people who want to transfer wealth to loved ones.
So even if life insurance cannot be a part of your short-term tax strategy for writing off business expenses, it can be an attractive long-term tax solution to pass wealth onto your heirs without diluting their proceeds with hefty taxes.
What type of business insurance is tax-deductible?
So can you deduct life insurance premiums as a business expense? In most cases, no, but there may be other types of business insurance that might provide some tax relief. Here are some insurance options for your company that can also provide a tax deduction.
- Liability insurance. Both general and professional liability insurance can cover professional lawsuits in a variety of situations, and it can be deducted as a business expense.
- Business interruption insurance. Another tax deductible type of insurance, this policy can reimburse eligible losses if your business is shut down due to a covered event, such as a fire
- Commercial property insurance. Similar to homeowners or renters insurance, commercial property insurance covers lost or damaged business property.
If any of these insurance policies make sense for your business structure, then you can deduct your premiums as an eligible expense. That boosts your protection while also lowering your overall tax liability.
List of deductible business expenses
Though you can’t rely on a life insurance tax deductible business expense, there are lots of other things you can deduct as a sole proprietor or small business owner. Some common tax deductions include:
- Computer equipment and software
- Work-related travel, meals, and mileage
- Phone and internet
- Home office expenses
- Legal and professional expenses
- Employee salaries
- Employee benefits
- Courses, webinars, and other education
- Contributions to tax-deferred retirement accounts (like a traditional IRA or 401(k))
Working with a seasoned tax professional can help you maximize your tax savings and keep track of your business expenses. All of those deductions can really help lower your taxes so you can keep more of your hard-earned income.
Bottom Line
Paying your life insurance premium each month probably won’t lower your tax bill, but it will help provide you with a solid level of financial security. This is especially important when you’re building your own business. There’s definitely risk involved, especially if you have any type of debt or inventory associated with your company. A comprehensive life insurance policy helps to ensure your family or partner can cover those expenses and still feel financially secure should you pass away.
Try using the Ethos needs calculator to determine what size policy makes the most sense for you. Then you’re ready to get a quote for your online life insurance policy.
The information and content provided herein is for informational purposes only, and it is not to be considered legal, tax, investment, or financial advice, recommendation, or endorsem*nt. You should consult with an attorney or other professional to determine what may be best for your individual needs.
