Can You Write off Life Insurance Premiums From Federal Taxes?
Life insurance is a financial product that allows you to protect your family from your financial debts after you die. The insurance companies do this by paying a death benefit when you die in return for premiums paid while you were living. You may be able to write off the premium payments on your taxes depending on how the policy is purchased.
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Types
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There are two ways to purchase life insurance. First, you may purchase life insurance as part of a corporate benefits package. If you own a corporation or if you work for a company that offers an executive bonus plan, you may buy life insurance using corporate funds. You may also purchase life insurance individually.
Significance
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When you purchase insurance through an executive bonus plan, the premiums may be written off on the corporate tax return. If you purchase the life insurance policy outside of a corporate benefits package, then there is no tax write-off. Life insurance premiums are not deductible on a personal tax return.
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Benefit
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You may deduct life insurance premiums if you own a business and the business pays the premium payments but you own the policy. The business benefits from this transaction since the premiums reduce the amount of taxable income the corporation needs to claim on its tax return.
Disadvantage
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You cannot write off life insurance premiums on a personal policy for any reason. If a corporation pays the premium payments, those premium payments are treated as income to you. This means that your personal income increases and your tax liability will increase.
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References
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