A common question we receive is "what insurance can I deduct on my tax return?"

For Individuals

If you are an individual employed at another company, most of the insurance you pay for is not tax deductible. Life insurance is never tax deductible. Health insurance, if provided by your employer, is paid with pre-tax money which is a benefit for you. If you are paying with after tax money, you're in the worst of all scenarios.

Insurance for your car and belongings is also not tax deductible if not used for a business purpose. If you have a home office used for business purposes, a portion of your home expenses can be deducted if you itemize on Sch A of your tax return.

For Self-Employed Individuals

If you work for yourself and are not considered a corporation or partnership, you may deduct your health insurance as an adjustment to income on page 1 of the tax return. You must have reported net income from your operations, though, on Sch C, E, or F.

You can also deduct worker's comp, business insurance, and health insurance paid on behalf of your employees.

For Owner's of S-Corporations

The rules are mostly the same as outlined above for SE folks, but the difference being that health insurance paid on your behalf must be reported as wages on your W-2, and then deducted on your personal 1040. Again, you must have income from your operations to deduct the health insurance payments.

Keys to Remember

Life insurance is usually never deductible.
Any insurance expense paid for that is ordinary and necessary for your business operations is deductible.
Health insurance is deductible for your employees and for yourself if you have income from the operations from the business. If you are taxed as an S-Corp, you must report those health benefits on your W-2 if you are a larger than 2% shareholder.

If you aren't convinced your CPA is helping you sort through and plan for insurance expenses, please contact us to see how we can help you!