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previous page Previous Page: Publication 535 - Business Expenses - Other Taxes
next page Next Page: Publication 535 - Business Expenses - Nondeductible Premiums
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taxmap/pubs/p535-023.htm#en_us_publink1000131022

Chapter 6
Insurance(p17)

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previous topic occurrence Insurance next topic occurrence

taxmap/pubs/p535-023.htm#TXMP696e92ceIntroduction

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. For more information, see Capitalized Premiums, later.

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Useful items

You may want to see:


Publication
 15-B Employer's Tax Guide to Fringe Benefits
 525 Taxable and Nontaxable Income
 538 Accounting Periods and Methods
 547 Casualties, Disasters, and Thefts
Form (and Instructions)
 1040: U.S. Individual Income Tax Return
See chapter 12 for information about getting publications and forms.
taxmap/pubs/p535-023.htm#en_us_publink1000144785

Deductible Premiums(p17)


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Deductible Premiums

You generally can deduct premiums you pay for the following kinds of insurance related to your trade or business.
  1. Insurance that covers fire, storm, theft, accident, or similar losses.
  2. Credit insurance that covers losses from business bad debts.
  3. Group hospitalization and medical insurance for employees, including long-term care insurance.
    1. If a partnership pays accident and health insurance premiums for its partners, it generally can deduct them as guaranteed payments to partners.
    2. If an S corporation pays accident and health insurance premiums for its more-than-2% shareholder-employees, it generally can deduct them, but must also include them in the shareholder's wages subject to federal income tax withholding. See Publication 15-B.
  4. Liability insurance.
  5. Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients.
  6. Workers' compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault.
    1. If a partnership pays workers' compensation premiums for its partners, it generally can deduct them as guaranteed payments to partners.
    2. If an S corporation pays workers' compensation premiums for its more-than-2% shareholder-employees, it generally can deduct them, but must also include them in the shareholder's wages.
  7. Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law.
  8. Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness.
  9. Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums.
  10. Life insurance covering your officers and employees if you are not directly or indirectly a beneficiary under the contract.
  11. Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause.
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Self-Employed Health Insurance Deduction(p18)


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Self-Employed Health Insurance Deduction

You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents if you are one of the following.
The insurance plan must be established under your business.
Deposit
Partners and more-than-2% shareholders may be able to amend prior year returns to take any self-employed health insurance deductions allowed under the rules explained above. Shareholders should write "Filed Pursuant to Notice 2008-1" at the top of any amended return.
Take the deduction on Form 1040, line 29.
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Qualified long-term care insurance.(p18)


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You can include premiums paid on a qualified long-term care insurance contract for you, your spouse, or your dependents when figuring your deduction. But, for each person covered, you can include only the smaller of the following amounts.
  1. The amount paid for that person.
  2. The amount shown below. Use the person's age at the end of the year.
    1. Age 40 or younger–$310
    2. Age 41 to 50–$580
    3. Age 51 to 60–$1,150
    4. Age 61 to 70–$3,080
    5. Age 71 or older–$3,850
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Qualified long-term care insurance contract.(p18)
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A qualified long-term care insurance contract is an insurance contract that only provides coverage of qualified long-term care services. The contract must meet all the following requirements.
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Qualified long-term care services.(p18)
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Qualified long-term care services are: The services must be required by a chronically ill individual and prescribed by a licensed health care practitioner.
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Chronically ill individual.(p18)
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A chronically ill individual is a person who has been certified as one of the following. The certification must have been made by a licensed health care practitioner within the previous 12 months.
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Benefits received.(p18)
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For information on excluding benefits you receive from a long-term care contract from gross income, see Publication 525.
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Other coverage.(p18)


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You cannot take the deduction for any month you were eligible to participate in any employer (including your spouse's) subsidized health plan at any time during that month. This rule is applied separately to plans that provide long-term care insurance and plans that do not provide long-term care insurance. However, any medical insurance payments not deductible on Form 1040, line 29, can be included as medical expenses on Schedule A (Form 1040), Itemized Deductions, if you itemize deductions.
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Effect on itemized deductions.(p19)


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Subtract the health insurance deduction from your medical insurance when figuring medical expenses on Schedule A (Form 1040) if you itemize deductions.
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Effect on self-employment tax.(p19)


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Do not subtract the health insurance deduction when figuring net earnings for your self-employment tax.
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How to figure the deduction.(p19)


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Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. However, if any of the following apply, you must use Worksheet 6-A in this chapter. If you are claiming the health coverage tax credit, complete Form 8885, Health Coverage Tax Credit, before you figure this deduction.
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Health coverage tax credit.(p19)
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You may be able to take this credit only if you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, or Pension Benefit Guaranty Corporation pension recipient. Use Form 8885 to figure the amount, if any, of this credit.
When figuring the amount to enter on line 1 of Worksheet 6-A, do not include the following.
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More than one health plan and business.(p19)
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If you have more than one health plan during the year and each plan is established under a different business, you must use separate worksheets (Worksheet 6-A) to figure each plan's net earnings limit. Include the premium you paid under each plan on line 1 or line 2 of that separate worksheet and your net profit (or wages) from that business on line 4 (or line 11). For a plan that provides long-term care insurance, the total of the amounts entered for each person on line 2 of all worksheets cannot be more than the appropriate limit shown on line 2 for that person.
previous pagePrevious Page: Publication 535 - Business Expenses - Other Taxes
next pageNext Page: Publication 535 - Business Expenses - Nondeductible Premiums
 Use previous pagenext page to find additional occurrences of topic items.Index for this Publication