For a business owner it is possible to have the premium become a business expense. However the benefit then becomes taxable should you have to use it. A better way to structure the payment is to use an executive bonus strategy. Please speak with your accountant on how to set that up. Basically you are increasing your salary to cover the premium payment, you then add to your withholding to cover the additional taxes. This way the individual is paying the premium so the benefit will be tax free and the business receives the payroll deductions.
For your employees, you can provide long term disability or short term disability as an employee benefit. The same rules apply however, taxes will be paid at some point, either on the premium or on the benefit.
It depends upon the type and purpose of the disability insurance policy. Insurance premiums for a disability insurance policy taken out to pay for lost earnings due to a illness or injury are not a deductible business expense.
However, a disability insurance policy taken out to pay business overhead expenses in the event the business owner is disabled by illness or injury is a deductible business expense. You can refer to IRS Publication 535, released in 2014, for the specific details on these matters.
The answer is yes, no and maybe. Yes, it can be tax deductible if the business owner purchases a Business Overhead Expense policy or BOE. This policy is specifically designed to pay bills and payroll not the owner direct. For this reason a BOE policy is tax deductible.
On a straight disability income policy yes you can set it up with the help of your accountant to have the business pay the premiums. In most cases you don't really want to do it that way. If you pay premiums with post tax dollars then benefits are tax free. If you pay premiums through the business then your benefits would be taxed as income. Think of it as do you want to pay taxes on the seeds or the harvest? The premiums are much smaller in comparison to the benefits received there for a lot less tax will be paid.
Disability Insurance will qualify for a business expense if the business pays for the policy and does not receive any of the benefit received. However the employee of the business will need to report any disability income benefits received as taxable income. The same holds true if a professional such as a physician or dentist is incorporated and has a salary or wage continuation plan in the corporate minutes. The corporation may pay for the policy but any benefits received are taxable as income. How premiums for coverage can be changed from year to year. For individual disability policies, in the event of a claim, whether benefits are taxed or not depends on how the premiums were paid during the year of claim. For group disability polices there is a three year look back for premiums. Overhead/practice expense disability policies are always tax deductible and benefits received by the business/practice are not taxable.
.JPG){kind=avatar}
For your employees, you can provide long term disability or short term disability as an employee benefit. The same rules apply however, taxes will be paid at some point, either on the premium or on the benefit.
However, a disability insurance policy taken out to pay business overhead expenses in the event the business owner is disabled by illness or injury is a deductible business expense. You can refer to IRS Publication 535, released in 2014, for the specific details on these matters.
On a straight disability income policy yes you can set it up with the help of your accountant to have the business pay the premiums. In most cases you don't really want to do it that way. If you pay premiums with post tax dollars then benefits are tax free. If you pay premiums through the business then your benefits would be taxed as income. Think of it as do you want to pay taxes on the seeds or the harvest? The premiums are much smaller in comparison to the benefits received there for a lot less tax will be paid.