Yes, life insurance is generally not considered a business expense for self-employed individuals if they are the owner and the insured person.
Here are the long details explaining why and when exceptions might apply:
General Rule:
For self-employed individuals, the IRS does not allow the deduction of life insurance premiums as a business expense if:
- You are the policyholder, and
- You or your family are the beneficiaries.
This is because the expense is considered personal, not directly related to the generation of business income.
Why It’s Not Deductible (Most of the Time):
Life insurance protects your family or estate in the event of your death. Because it’s not required for running your business or serving your clients, the IRS sees it as a personal financial planning tool, not a business necessity.
When Life Insurance Can Be a Business Expense:
There are some exceptions, especially in partnerships or corporations:
In a Business Partnership:
- If partners take out life insurance on each other as part of a buy-sell agreement, the business can deduct premiums only if the business is not the beneficiary.
- But if the business is the beneficiary, then the premiums are not deductible.
In a Corporation:
- If a corporation provides group term life insurance (usually up to $50,000 in coverage) to employees, including the owner, the premiums are deductible as a business expense.
- However, any premiums paid for coverage above $50,000 are generally taxable income to the employee.
Self-Employed Tip:
You might be able to deduct disability insurance or health insurance premiums as a self-employed person but not life insurance.
Summary:
| Scenario | Deductible? |
| Self-employed individual, own policy | No |
| Group term life insurance (under $50k) | Yes |
| Business-owned policy (company = beneficiary) | No |
| Buy-sell agreement (partner = insured) | Usually No (unless structured carefully) |
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