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Small Business Insurance in Worcester: The Tax Implications

by Lisa Hirbour / June 1, 2016
Small Business Insurance Worcester

How would you like a 15, 25, 34 or even 39 percent discount on your small business insurance premiums? In effect, that's what you can possibly receive if you list the premium as a deductible expense on your Worcester business's taxes — the exact "discount" will depend on the legal status of your business and its income, among other things. In most cases this insurance is tax deductible, but here are some points to consider.

Worcester Small Business Insurance: Deductible Expenses to Look For

The IRS states that most common types of small business insurance are tax deductible, which include insurance covering your property and equipment, liability insurance, group medical insurance for employees, and workers compensation policies. Life insurance policies are usually deductible as long as they cover your employees rather than yourself and do not list you (both personally and as a business) as the beneficiary.

Policies that pay for a loss of business earnings through your own sickness and disability cannot typically be deducted; however, you may be able to deduct the cost of overhead insurance, which will pay specific costs of running the business during a period when you are injured or sick. 

Note that you cannot deduct the costs of a "self-insurance" fund, which is not a formal insurance policy but rather where you put money aside regularly to use if and when you have unexpected costs.

State Law and Worcester Business

Massachusetts law has a simple principle that has been confirmed by several updated laws: business expenses for Worcester firms are deductible for state taxes in the same way — and to the same extent — as federal taxes through the IRS. 

Principles of Small Business Insurance Tax Deductions

Business costs are only eligible for tax deduction when they are considered "ordinary and necessary." Those words are slightly misleading, since courts have ruled "necessary" doesn't literally mean you have to make the expenditure for your business to operate. Meanwhile, "ordinary" means the expenditure is common for your type of business. 

Insurance should meet this test, given that it is both a common expense and a sensible idea for the health of the small business. One of the only times you might run into problems is if you take out a particularly unusual policy that covers a risk uncommon for your line of business. In this case it may be worth getting expert advice to be on the safe side. 

In short, as a Worcester business owner, you should be able to deduct most small business insurance premiums as long as they cover risks to the business's assets. Always check if you are uncertain about claiming a particular expense.

Are You Covered?

Disclosure:

This information is not intended to be a substitute for specific individualized tax or legal advice. Neither FSC Securities Corporation., nor its registered representitives, offer tax or legal advice. As with all matters of a tax or legal nature, you should consult with you tax or legal counsel for advice. 

Tags: Small Business Insurance

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