Is life insurance tax deductible?
Life insurance premiums can cost anywhere from a couple of hundred to a few thousand dollars. In general, this expense cannot be considered tax deductible.
Life insurance is one way by which people can provide financial protection for their loved ones after they pass away. Premiums can cost from hundreds to thousands of dollars a year, and unfortunately for taxpayers, they are generally not considered tax-deductible. This is because the IRS considers them a personal expense that is not directly related to the operation or maintenance of a business.
However, there are some exceptions and special circumstances where life insurance premiums can be deducted from your taxable income.
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When are life insurance premiums tax-deductible?
For example, if you are business owner and purchase life insurance for your employees as a benefit, you may be able to deduct the premiums as a business expense on your tax return. In this case, the policy’s beneficiary should neither be the company nor its owner.
A deduction could also be possible if you bought life insurance as part of a buy-sell agreement. The policy must be related to your business, and the premiums must be reasonable and necessary to your company’s operations.
If you are a self-employed individual, you may be able to deduct a portion of your premiums as a business expense if the life insurance policy is used to secure a business loan or is part of a qualified retirement plan.
Giving to charity
Another instance where premiums could be deductible is if the life insurance policy were donated to a qualified charity. This will only apply if the charity becomes both the owner and beneficiary of the policy.
Tax regulations can be complex and are subject to change, so it’s a good idea to consult with a tax expert or professional to get some guidance on your particular situation, and determine if your life insurance premiums are tax-deductible.