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previous page Previous Page: Publication 535 - Business Expenses - Capitalized Premiums
next page Next Page: Publication 535 - Business Expenses - Costs You Can Deduct or Capitalize
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taxmap/pubs/p535-026.htm#en_us_publink1000144804

When To Deduct Premiums(p20)


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Premiums

You can usually deduct insurance premiums in the tax year to which they apply.
taxmap/pubs/p535-026.htm#en_us_publink1000144805

Cash method.(p20)


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If you use the cash method of accounting, you generally deduct insurance premiums in the tax year you actually paid them, even if you incurred them in an earlier year. However, see Prepayment, later.
taxmap/pubs/p535-026.htm#en_us_publink1000144806

Accrual method.(p20)


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If you use an accrual method of accounting, you cannot deduct insurance premiums before the tax year in which you incur a liability for them. In addition, you cannot deduct insurance premiums before the tax year in which you actually pay them (unless the exception for recurring items applies). For more information about the accrual method of accounting, see chapter 1. For information about the exception for recurring items, see Publication 538.
taxmap/pubs/p535-026.htm#en_us_publink1000144807

Prepayment.(p20)


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You cannot deduct expenses in advance, even if you pay them in advance. This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year.
Expenses such as insurance are generally allocable to a period of time. You can deduct insurance expenses for the year to which they are allocable.
taxmap/pubs/p535-026.htm#en_us_publink1000144808

Example.(p20)

In 2008, you signed a 3-year insurance contract. Even though you paid the premiums for 2008, 2009, and 2010 when you signed the contract, you can only deduct the premium for 2008 on your 2008 tax return. You can deduct in 2009 and 2010 the premium allocable to those years.
taxmap/pubs/p535-026.htm#en_us_publink1000144809

Dividends received.(p20)


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If you receive dividends from business insurance and you deducted the premiums in prior years, at least part of the dividends generally are income. For more information, see Recovery of amount deducted (tax benefit rule) in chapter 1 under How Much Can I Deduct?
previous pagePrevious Page: Publication 535 - Business Expenses - Capitalized Premiums
next pageNext Page: Publication 535 - Business Expenses - Costs You Can Deduct or Capitalize
 Use previous pagenext page to find additional occurrences of topic items.Index for this Publication