As a general rule, life insurance premiums are not tax deductible. This is true whether you are an individual or a corporation. The death benefits from the policy are not subject to taxation and do not increase a person's or corporation's gross income for taxation purposes, but in order to gain this benefit you must not deduct the cost of the policy premium from your taxable income. Many have tried and failed to find loopholes to this rule. There is only one way the law allows you to deduct premiums.
Things You'll Need
- Qualified retirement plan
Hire a CPA. Chances are that you will not be able to deduct your premiums. If you choose to attempt to do so anyway, hire a professional to guide you through this process.
Join a qualified retirement plan through your business. The life insurance in question must be part of this qualified retirement plan, or else this will not work. The insurance must be a permanent plan and must accumulate cash value. The amount of insurance permitted is subject to certain rules, depending on the type of plan involved, so you should consult your CPA. This type of transaction is not permitted in an Individual Retirement Account (IRA).
Contribute to your qualified retirement plan. By doing this, your contributions will pay the insurance premium and also be tax deductible as part of your qualified plan.
Enter the appropriate contribution amount on your tax forms when filing. The amount should appear on your W-2 form along with your income and various taxes withheld. You should have your tax professional do this in order to ensure the legality of what you are attempting to do.
Tips & Warnings
- The IRS is very picky about life insurance premium deduction, and doing so may increase your chances of audit, or cause the death benefit to become taxable income. Proceed with caution.
- Photo Credit thai funeral image by Adrian Hillman from Fotolia.com