Only some types of insurance are tax-deductible. This includes personal health insurance in many situations as well as most business insurance.
Personal Insurance Deductions
As a general rule, the only type of personal insurance that may be deductible is health insurance. Other types of insurance, such as mortgage insurance premiums, are generally not deductible.
Keep in mind that if you have insurance for a gig economy job, a rental property, or other for-profit activities, you may be eligible for business deductions.
Personal Health Insurance Deduction
You generally don’t have to pay taxes on health insurance premiums paid by your employer. This is technically an exclusion from your income instead of a deduction, but either way, it means not paying taxes.
If your employer doesn’t pay for all or part of your health insurance, you generally can’t deduct what you pay.
If you’re self-employed, you may be able to take the self-employed health insurance deduction. To qualify, you generally can’t be eligible for insurance through another employer you work for or your spouse’s employer.
Another way you may be eligible to deduct your health insurance is if your medical expenses during the year exceeded 7.5% of your Adjusted Gross Income. Medical expenses can include your insurance premiums, copays, and expenses not covered by insurance like hearing aids.
Subsidized Health Insurance
If you have a health insurance subsidy, you can only deduct the portion of your premiums that you pay. You can’t deduct the amount covered by your subsidies.
If you take the standard mileage deduction on your Schedule C, it covers your car insurance. If you use the actual expenses method, you can a portion of your insurance premiums based on how much you drove. For example, if 50% of the miles you drove during the year were for business, you can deduct 50% of your insurance payments.
General Business Insurance
Other types of insurance are usually deductible if they’re an ordinary and necessary business expense. Necessary doesn’t mean required by law, but that in your reasonable judgment, it’s something that’s needed to properly protect your business.
Examples of deductible business insurance can include general liability, professional liability, and business property policies.
Personal life insurance premiums are generally not deductible.
Life insurance policies purchased by a business may be deductible when they protect the business from losing a key employee or co-owner. Life insurance policies that benefit employees may also be deductible as a compensation expense.
Life insurance policies that benefit an owner personally, including the owner’s family or estate, are often not deductible even if purchased by a business.