Is Key Person Insurance Tax Deductible? According to the Internal Revenue Service (IRS), premiums paid for a life insurance policy are not a deductible expense on a business’ federal income taxes.
Why is life insurance taken out on a key employee of a business?
Here’s how key person insurance works: A company purchases a life insurance policy on its key employee(s), pays the premiums and is the beneficiary of the policy. The reason this coverage is important is because the death of a key person in a small company can cause the immediate death of that company.
How do I deduct life insurance premiums?
Life insurance premiums are considered a personal expense, and therefore not tax deductible. From the perspective of the IRS, paying your life insurance premiums is like buying a car, a cell phone or any other product or service.
How do you write off life insurance premiums?
If you purchase life insurance policies for your employees or officers, you can usually count the premiums you pay as operational expenses. To claim a deduction for these costs, include the full amount of the premiums with the business expenses you list on Schedule C.
Can you deduct officer life insurance?
Many companies have life insurance on key employees and officers. The officer life insurance premiums are not deductible so they are backed out as a “book expense not deductible”. Then the proceeds would be recorded as “book income not taxed”.
Is the cost of life insurance deductible for employees?
Life insurance premiums are only deductible if the corporation is providing life insurance as an employee benefit. The employee will not be taxed on these premiums, as they should be excluded from the wages section on the employee’s W-2. However, there are a couple exceptions:
Is the key man life insurance policy tax deductible?
A key man policy can also be an employee benefit, if the company transfers the life insurance policy to the executive or insured employee. Though key person life insurance premiums aren’t tax deductible, the proceeds of the policy are usually provided to the company free of income tax.
Can a business write off life insurance premiums?
Play It Smart. The bottom line: since life insurance policy proceeds are generally non taxable to the beneficiary, no business should be writing off premiums for life insurance paid on key employee or key executive policies.
Can A S corporation deduct life insurance premiums?
If the S corporation is the beneficiary, the premiums are not deductible. The S corporation must also sometimes report life insurance premiums as taxable wages paid to the employee. Deductible Life Insurance Premiums. As long as employees are the beneficiaries, S corporations are allowed to deduct life insurance premiums.
