Tax Deductible Insurance: The Facts

Imagine looking over your expenses from the year, and you calculate not only no refund, but you owe a hefty sum. Your small business is doing well, but not well enough that it can take a heavy tax hit or any other easy mistake. What can you do? Did you take tax-deductible insurance into account?

The savvy business owner works to get the most out of their return. Whether you use a tax app or are a pen-and-paper warrior, each person must hunt for every last tax deduction available to them. This helps puts money back in your business, and money in your business is an investment in its success.

adults brainstorming with post-its on a board — *Brainstorm when you can about deductions for your business. A penny saved is one more in your pocket.*

So, how can you get ahead of the curve? For the self-employed, the small business owners, and even larger companies, certain tax information can be murky. Uncovering the mysteries of insurance premiums and how they fit with taxes can help lower your payments come tax season.

Insurance is a Cost of Business

The IRS’s 2018 Publication on Business expenses states, “You generally can deduct the ordinary and necessary cost of insurance as a business expense if it is for your trade, business, or profession. However, you may have to capitalize certain insurance costs under the uniform capitalization rules.” This means money spent that was necessary to keep the business running necessary business running can be deducted. It also allows for a process called “capitalization” for certain expenditures, which means transforming your insurance premiums from a business “expense” to a business “cost.” The difference between these two is that an expense refers to the usage of an item, whereas a cost is purely money spent.

So, now the IRS has given you the go-ahead. You can take stock of your premiums and capitalize them if needed. When filling out your tax forms, make sure you place the correct amount spent for the year. For example, on a 1040 form, lines 46, 61, and 69 will be used to report your insurance expenditures.

These examples can be used by the self-employed as well. It comes down to locating which coverages you have, how much you spent on them, and if the premiums are deductible. Let’s look at what premiums make the biggest impact on your tax statement.

Only Some Insurance Is Tax-Deductible

You can start crossing off expenses and reducing your tax payment, putting more capital back into your company’s financial reservoir. Here are the premiums that are deductible:

business notes on insurance and other expenses — *Take good notes for these deductions. Tax forms will need accurate information. Celebrate your savings!*

Fire, theft, accidents, storm, or losses similar to these categories
Business interruption
Group Health/medical
Long-term care
Credit insurance coverage against bad debt
Liability
Worker’s Compensation
Malpractice

Other items of note are life insurance, vehicle insurance, unemployment funds, or overhead insurance. Life insurance can be useful here only if it covers you under contract. For your vehicles, they can be deducted (even if one is for personal use) only when used for the business. The payments to the unemployment fund are only counted in this list if they are approved by your state of residence. Also, the overhead insurance comes into play if you have used it for a long period due to a disability.

Non-Deductible Premiums

Payments made for a self-insurance reserve
Loan security
Earnings Loss
Life insurance/annuities not covered above

Another good rule to note is that if you paid for a premium in advance, this is not considered suitable for the current tax year. Remember, if you take out a premium for five years, each year only one-fifth of the payment can be used to offset your expenses. So you can not deduct the entire premium in one year since you are using it over the course of five.

person calculating numbers and stats for their company — *You’d be surprised the intricacies of this process. Don’t worry! Follow our lead, and you’ll be ahead in no time.*

If you are a sole-proprietor or self-employed, there is more good news for you. Your payments for coverages like medical, dental, and long-term care can be included as an expense. However, this is not the case if you “could” have been covered by your spouse for a certain time in the year. If they see you had the option, they will not take the deduction on your taxes.

In most cases, your business’ essential premiums are considered tax-deductible insurance, so they will be useful come next season. Using the list provided, you can cut down on business costs and fill out that revenue line. What could be better than being covered and saving money?

EZ.Insure is help both you and your business. Your agent will answer any questions you have, compare different plans for you, and even sign you up when you’re ready, free of charge and without having to worry about being hounded by endless calls. To get started simply enter your zip code in the bar above, or you can speak to an agent by emailing [email protected], or calling 888-350-1890. EZ.Insure makes the entire process easy, and quick.

8 Costly Mistakes New Business Owners Make

Learn from Those that Came Before

With all the small business ideas out there, we live in a wonderful time of innovation, but that comes with its own risks. Whether you’re wanting to sell produce and flowers in a farmer’s market or opening up your own electronic repair store, it’s good to be aware of the pitfalls with running your own business. Don’t make these business owner mistakes.

1. Failing to Organize & Budget

Like anything, organization will set you free. When starting a business on the ground floor, having a clear plan with SMART goals can not only keep you going in the right direction but also help keep stress down.

*These time-honored plans will help keep you on the path to success.*

This also involves keeping clear notes on your goals and setting intentions, especially with a budget. With all of the clarity, you should have little to no mistakes during the start-up period by sticking with your business plan.

2. Skipping Research on the Market (Knowing Your Customer)

It’s not the most fun aspect of business running, but it is a necessary one. The market is your influx of customers and money, so you can’t ignore its heartbeat or where it flows. Researching what’s happening in the market will give you first-hand knowledge, making you one step ahead of those who do not.

A secondary aspect of this is knowing your customer base, a part of the market. Knowing exactly what they want and how it pertains to your goods/services can keep your edge. For example, if you sell sandwiches and your market research shows a new type of cheese coming out, buying the cheese and utilizing it in your store can give you an edge over your competitors.

And you would never have known if you hadn’t looked into it.

3. Not Taking Advantage Of Technology

While the solidity of hard copies can’t be forgotten, technology has come far in contemporary times, assisting us in many trivial tasks. Also, in our screen-drenched world, your business could be disregarded for not having a website or having a mobile presence. Yes, this means social media too.

Software for businesses is a relatively cheap expense. If you want to do your own accounting (which you can, but don’t skip this either), there are programs available to secure all the numbers in their places. Other software can be useful from tax preparation to advertisements. Would your business type benefit from an e-commerce store; if so, think about which host websites are available. This is the most costly of business owner mistakes.

business desk full of technology — *With all the tech available to you, it’d be silly not to at least take a look.*

4. Forgetting Paperwork

Simply put, cover yourself. The amount of paperwork can be staggering, but it is a necessary part of the business world. Don’t forget to sign all your agreements and keep receipts in case something comes up later.

5. Undervaluing Yourself

Along with market research, you’ll see the average cost of your goods/services. When new businesses start, they can assume they’ll start in a novice category. While true for some, it may not be the same for all.

Make a fair market price for what you provide so that you can maintain a solid profit margin. Adjustments may come, so be ready for those as well.

6. Spending Too Much Too Soon (Or Too Little)

Debt becomes a big problem over time, but business loans are known to be a popular first choice. Your starting capital needs to stretch to cover everything you need starting up. Again, referencing the goals from earlier, you should be able to attain them and keep within budget. Just make sure not to stretch yourself or make large personal purchases using your company account.

The same can be said about spending too little. If you don’t maximize your starting capital, you risk lessening your impact on the market and thus falling behind from the get-go. There is always a risk, but make sure these risks are calculated.

7. Not Planning for Hardship

Hard times fall on us all, and businesses are no exception. Whether it’s an unforeseen accident, theft, or illness on the team, you’ll want to be prepared for it. Insurance can definitely help with this, but also keep a savings account with enough money set aside for the interim. For more information on types of insurance, look at our easy guide here.

This way, when hardship falls on you, you can rest secure with the knowledge that you can see it through, and your business will continue to thrive.

8. Going it Alone

We’re a communal species, and this goes into the intricate dealings of a business. You’re not alone in the market so you shouldn’t be alone in your company. If you work alone and are comfortable with that, of course, it’s okay, but when it comes to managing more complex matters, don’t make the mistake of not asking for help or advice.

money graph to show success — *Use your knowledge and organization to take secure steps in your risks. It’s about balance.*

Hiring others when needed and delegating is the start of a strong team. Don’t forget that by working together, we can achieve loftier goals than apart.

This can be done with small hires like a personal or virtual assistant, hiring agents for insurance, or even seeking financial advice from experts.

Successful business owners learn all these things, from organizing to teamwork. As long as you take it one step at a time, you should have little problems navigating the business world, and you won’t fall for these business owner mistakes.

EZ.Insure is there to make sure you’re not alone. Your agent will answer any questions you have, compare different plans for you, and even sign you up when you’re ready, free of charge and without having to worry about being hounded by endless calls. To get started simply enter your zip code in the bar above, or you can speak to an agent by emailing [email protected], or calling 888-615-4893. EZ.Insure makes the entire process easy, and quick.

Tag: company tips