Life insurance is a type of insurance that financially protects either loved ones or business entities from your premature death. You are not allowed to deduct life insurance premiums if you are either the owner or beneficiary of the policy. Essentially, according to the IRS regulations, you are not allowed to deduct premiums if you have any interest or possible gain in the policy. If you don’t have any direct or indirect interest, you can deduct life insurance premiums as part of business expenses. For example, a business may purchase life insurance for an employee as part of her benefits package, paying part of the premium but not being the insured no the beneficiary; these premiums are deductible.
Purchase the life insurance policy for an employee or a group. You may pay all of the premiums or part of the premiums for the employee as part of a benefits package. Group-term life insurance, fringe benefits or travel life insurance policies qualify. For group policies to qualify, it must meet the 10-employee rule by having at least 10 full-time employees throughout the year who are insurable or have met a six-month waiting period.
Confirm that you or your business is in no way a beneficiary of the insurance proceeds. Key-man insurance is a common business life insurance policy that may buy company stock upon the death of a key employee. This preserves the ownership of the company and designates interest and would not qualify for the deduction.
File IRS tax Form 1040, Schedule A if you are a sole proprietorship to file for the deduction. Corporations can file Form 1120 and take the deductions under Line 25, Employee Benefits.