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Is Business Insurance Tax-Deductible For The Self-Employed?


Is Business Insurance Tax-Deductible For The Self-Employed?

Business insurance – it's like a safety net for your company, right? Well, you’ll be happy to know that it can actually be tax-deductible for self-employed individuals. That means you're not only protecting your business but also saving some money come tax season. Insurance expenses aren’t the only deductible from business taxes, though. A lot of related costs can be considered business tax write-offs if they are necessary and ordinary to your work. So, tax-deductible business insurance is just one part of the equation. By keeping track of all business costs, 1099 workers can claim them all as tax-deductible expenses and lower their SE tax bill.

Table of contents

Key takeaways...Read more

When is business insurance tax-deductible?...Read more

Cyber liability insurance...Read more

Workers compensation insurance...Read more

Property insurance...Read more

Business interruption insurance ...Read more

Are all types of insurance premiums tax-deductible?...Read more

Is general liability insurance tax-deductible?...Read more

Is malpractice insurance tax-deductible?...Read more

Is car insurance tax-deductible? ...Read more

Is employee health insurance tax-deductible?...Read more

Is pet insurance tax-deductible?...Read more

Is renters insurance tax-deductible?...Read more

Do I need business insurance for my LLC?...Read more

How to deduct business tax write-offs business tax write-offs?...Read more

Key takeaways

  • Business insurance is tax-deductible for self-employed individuals.
  • Self-employed individuals can only write off business insurance the year it is incurred.
  • Health insurance premiums can be deducted from income taxes as an income adjustment.

When is business insurance tax-deductible?

The IRS considers insurance a necessary part of doing business, which is great news. So, if you’ve invested in insurance policies, you can deduct the expenses on your tax return. Business insurance is quite a vast category as business owners need insurance for a variety of things. To write it off, sole proprietors and single-member LLCs will enter the expense on Line 15 on Form Schedule C, the main form for paying self-employment taxes. The catch is, you can only deduct the premiums for the year they are incurred. In other words, if you paid business insurance premiums for 2023, you can only deduct those expenses when you file your 2023 tax return. You can't carry these deductions forward or backward to other tax years. This immediate deduction is both a pro and a con. On the one hand, it can help reduce your taxable income for the current year, thereby also reducing tax liability. On the other hand, it means that you need to make sure that you have enough income in the year of the expense to fully benefit from the deduction. If your income is low or inconsistent in a particular year, you might not be able to take full advantage of this deduction.
Infographic entitled Types of Business Insurance listing insurance expenses that can be written off from 1099 taxes.

Cyber liability insurance

With cyber attacks and data breaches becoming more common, investing in cyber liability insurance can protect businesses from any severe financial repercussions. You can deduct both first-party and third-party cyber liability insurance from your taxes. First-party cyber insurance comes into play by covering costs when a business suffers a data breach. Third-party cyber insurance protects businesses from legal action if they are responsible for a client’s data being compromised.

Workers compensation insurance

Accidents are unavoidable at the workplace, and as an employer, you are responsible for the medical costs of any injuries. This is where workers compensation comes in handy. Workers compensation insurance helps cover any work-related illnesses or injuries and even protects you against any employee lawsuits. Ideally, you should get this insurance as soon as you hire your first employee.

Property insurance

In 2020, Congress introduced the “mortgage insurance premium deduction,” which allowed homeowners to deduct their insurance premiums from their taxes, even if they didn’t use their homes for business. While the mortgage insurance premiums deduction is no longer available (it was discontinued after 2021), self-employed individuals can still deduct property insurance. Property insurance is tax-deductible if you own or rent any property related to your business, like an office or building. Commercial property insurance also covers business assets like machinery, tools and furniture. This is different from homeowners insurance, which only covers liability against your residence.

Business interruption insurance

If your business ever encounters circumstances forcing you to close down operations for a short period of time, this insurance covers your costs until you’re ready to reopen again. Say you’re a personal trainer who owns your own gym and a pipe bursts in your locker room. The repairs will take time, so the gym needs to close until it's fixed. Business interruption insurance covers most of the rebuilding expenses and sometimes can even provide relocation aid if you need to work out of a temporary location. The coverage lasts for the entire period until your business is running again. Most policies last for 30 days but it can be extended to last a year. How much you’ll be paid will depend on the type of coverage you initially paid for.

Are all types of insurance premiums tax-deductible?

According to Publication 535 from the IRS, not every type of insurance premium is tax-deductible. Most of the time, if an insurance policy is taken out for personal reasons, you can’t write it off.

Is general liability insurance tax-deductible?

General liability insurance is a necessity for every business. It's like a safety net to protect your business when things get legally complicated. This insurance generally covers the costs of legal expenses and damages from injuries or property damage involving third parties. General liability insurance is typically tax-deductible for all types of self-employed individuals as it is considered an ordinary and necessary business expense. When unexpected issues arise, this insurance can make a big difference in keeping a business financially stable.

Is malpractice insurance tax-deductible?

Also known as professional liability insurance, malpractice insurance is a tax-deductible expense for self-employed individuals. It provides coverage in the event of lawsuits or claims related to professional errors, negligence, or misconduct. If a client sues you, you’ll need this insurance policy to protect yourself from paying the legal costs yourself.

Is car insurance tax-deductible?

Car insurance, also known as auto insurance, covers any liability or property damages in case of accidents. Self-employed individuals can deduct car insurance premiums as a business tax write-off if they use their car for work. This includes delivery drivers, rideshare drivers and even 1099 workers who use their car for running errands or attending meetings. But you can’t write off the premium if you already use the standard mileage method to deduct vehicle mileage. Auto insurance can only be tax-deductible if you use the actual expenses method. Additionally, if you use your car for personal reasons, you can only deduct the business portion of your insurance premium.

Is employee health insurance tax-deductible?

While self-employed individuals cannot write off health insurance, medical insurance premiums are tax-deductible. You can only write off health insurance premiums if you’re not part of an employer-covered health plan. The premiums aren’t tax-deductible even if you’re eligible for one but choose to pay for it yourself. This deduction reduces your taxable income, which can result in a lower estimated tax liability, too. It covers long-term care, health and dental for yourself, your spouse, and your dependents. Small business owners with employees can also take employee health insurance premiums as a business deduction if they provide health insurance plans. As health insurance isn’t a part of business insurance, this deduction should be claimed as an income adjustment on Schedule 1 (Form 1040). Self-employed individuals can write off personal medical expenses as an itemized deduction to lower their income taxes.

Is pet insurance tax-deductible?

Unfortunately, pet insurance is not tax-deductible since it’s not a business expense. And unless you have a service animal that helps you with your work, deducting pet insurance is a no-go. You’ll need to talk to a tax professional if you think you’re eligible to deduct a part of your pet insurance, since the eligibility conditions are pretty specific. Pet insurance premiums are also not considered medical expenses for human beings, even if the insurance covers medical expenses for your pets. The IRS only allows tax deductions for qualified medical expenses that are necessary for the treatment of medical conditions that affect you, your spouse and your dependents.

Is renters insurance tax-deductible?

Renters insurance, typically, is not tax-deductible. Unlike some other types of insurance, such as health or business-related insurance, renters insurance is considered a personal expense and doesn't qualify for tax deductions. It mainly protects your personal assets and provides liability coverage for renters. So, you generally won't be able to claim renters insurance premiums as a deductible business expense from your taxes. It's important to keep in mind that while you can't deduct the premiums, renters insurance provides valuable protection for your possessions and liability coverage, which can be a financial lifesaver in case of unexpected events like theft, fire or accidents. The one caveat to renters insurance being tax-deductible is if you run your business from your home. Then, you can claim it as part of the home office deduction. Remember that your home or workspace has to be the main area you work from.
Infographic entitled Non-Tax-Deductible Insurance Policies listing insurances that cannot be taken as business tax write-offs.

Do I need business insurance for my LLC?

You may be asking yourself whether you need business insurance for your LLC. After all, you formed an LLC to limit your personal liability, so is business insurance still necessary? The answer is yes. In certain cases, you are legally required by the state to have certain types of business insurance. For example, you need to have workers' compensation insurance if you have any employees. Some states might need other types of business insurance, depending on their rules. So, like every other business entity, LLCs need business insurance. And like other business entities, LLCs can claim business insurance as a tax-deductible expense. But that’s not all you can write off.
Infographic entitled What Can You Write Off With An LLC listing expenses that are LLC deductions.

How to deduct business tax write-offs business tax write-offs?

The last thing we’ll cover is how to actually write off these tax-deductible expenses we talked about. Business insurance is tax-deductible, but you have to report them correctly if you want to claim the deduction. Depending on the business entity, this process might vary. Sole proprietorships have to report business insurance on Line 15 of Schedule C. Single-member LLCs have to do the same, as the owners pay tax only at the personal level. General partnerships use Schedule K-1, while multi-member LLCs and S Corps use Form 1120-S. To claim tax-deductible insurance premiums and other business expenses for that matter, recordkeeping is essential. Receipts, insurance claims, invoices – they all need to be saved. And FlyFin can help. A.I. finds business deductions while an income tracker records your 1099 income. Built-in tax calculators also find your estimated tax liability, and CPAs can file your returns and provide expert 1099 tax guidance.
Infographic entitled Business Insurance Tax Forms listing forms business entities need to claim business insurance as a business tax write-off.
Understanding how business insurance can be tax-deductible for 1099 workers is a crucial aspect of business financial management. A lot of research goes into picking the best type of business insurance coverage, and the same should apply to writing off insurance expenses, whether consulting a CPA or doing it yourself. Keeping good records throughout the tax year is an essential step in claiming any kind of business deductions without triggering an audit from the IRS. Doing this will get you through tax season without any surprises.

Office Supplies Tax Deduction

Office supplies are tax deductible for self-employed individuals and can be reported under the office expenses category on Schedule C.

Phone Tax Deduction

Cell phones can be a business tax deduction for self-employed individuals if it is an ordinary and necessary expense. A separate business cell phone can be fully written off.

Advertising Tax Deduction

Ordinary and necessary promotion expenses and marketing expenses are tax-deductible for self-employed individuals. They should be claimed on Schedule C when filing 1099 tax.

Meals Tax Deduction

The meals and entertainment deduction in 2024 allows 1099 workers to deduct 50% of business meal costs. Certain meal and entertainment expenses are still fully deductible.

Business Travel Tax Deduction

Expenses related to traveling are deductible for business purposes. A per diem rate is set for deductible travel expenses.

Charitable Contribution Tax Deduction

If you make a charitable donation to an organization, it might count as a tax deduction. Not all charitable donations count as a write-off.

Clothing And Accessories Tax Deduction

Self-employed individuals can take the clothing tax deduction if their clothes cannot be worn outside the work environment.

Commission And Fees Tax Deduction

Self-employed individuals can claim certain commissions and fees as tax deductions if they are related to their business and are ordinary and necessary.

Contract Labor Tax Deduction

If you do any contract labor, you will have to pay contract labor taxes, also known as SE tax. Estimated payments quarterly need to be made for tax liabilities over $1,000.

Internet and WiFi Tax Deduction

Self-employed individuals can deduct some of their internet bills if they work from home as part of the home office deduction. Internet costs can also be reported on Schedule C.

Medical and Dental Tax Deduction

Certain dental and medical costs can be claimed as a medical tax deduction if itemized when paying income taxes. Expenses have to be more than 7.5% of AGI.

Rent Tax Deduction

Rent is tax deductible for self-employed individuals who work from home or have a separate office space. Some states offer renters tax credits to lower state taxes.

Repair and Maintenance Tax Deduction

Capital improvements can be claimed as a tax deduction through depreciation. Repairs to rental properties can be claimed as a business expense.

Professional and Legal Services Tax Deduction

Legal fees are tax deductible from 1099 taxes under the legal and professional fees category on Schedule C. The category also includes consultant and tax prep fees.

Shipping Tax Deduction

Business-related shipping expenses are tax-deductible. Shipping supplies and the cost of shipping are included as write-offs.

Software Tax Deduction

Software depreciation can be claimed with the straight-line method, Section 179 or through amortization. Report software depreciation on Form 4562.

Student Loan Payment Tax Deduction

Student loan interest paid is tax-deductible, and every type of education loan qualifies for the deduction.

Taxes and Licenses Tax Deduction

Self-employed individuals can take the license fee tax deduction on taxes and licenses that are ordinary and necessary business expenses.

Training and Education Tax Deduction

The educator expenses tax deduction allows eligible educators to deduct $300 of unreimbursed expenses from their taxes. Use education tax credits to lower tax liability.

Utilities Tax Deduction

Utilities are tax deductible when they are an ordinary and necessary business expense. They can be claimed with the home office deduction or as a rental property deduction.

Vehicle Insurance Tax Deduction

Interest on a car loan is tax deductible if it is used for business. Choose between the standard and actual method when claiming the vehicle deduction.

Vehicle Purchase Tax Deduction

You can claim the vehicle tax write-off if you’re self-employed and use your vehicle for business. It can also be taken if you lease your vehicle.

Mortgage Interest Tax Deduction

The mortgage interest deduction can be claimed by homeowners who itemize their expenses. You could claim the mortgage interest tax credit if you’re in a lower tax bracket.

Office Supplies Tax Deduction

Office supplies are tax deductible for self-employed individuals and can be reported under the office expenses category on Schedule C.

Phone Tax Deduction

Cell phones can be a business tax deduction for self-employed individuals if it is an ordinary and necessary expense. A separate business cell phone can be fully written off.

Advertising Tax Deduction

Ordinary and necessary promotion expenses and marketing expenses are tax-deductible for self-employed individuals. They should be claimed on Schedule C when filing 1099 tax.

Meals Tax Deduction

The meals and entertainment deduction in 2024 allows 1099 workers to deduct 50% of business meal costs. Certain meal and entertainment expenses are still fully deductible.

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