Is business insurance tax-deductible?

Which business insurance premiums are tax-deductible?

According to the Internal Revenue Service, business owners can deduct the cost of premiums for the following types of coverage:

Commercial property insurance covers damage to buildings and business property, such as equipment, inventory, and tools, that results from burglary, vandalism, theft, fire, or a natural disaster.
Business liability insurance covers third-party claims related to bodily injury, property damage and accidents.
Professional liability insurance, also known as errors and omissions (E&O) insurance, shields businesses from legal claims related to copyright violations, errors and oversight, malpractice, misinformation, or neglecting to provide a promised service.
Workers’ compensation insurance covers your employees’ medical bills and lost wages if they get injured or sick at work and can’t do their job.
Commercial vehicle insurance protects against third-party claims of bodily injury and property damage and may also include coverage for damage to your own vehicles and medical expenses.
Business interruption insurance helps cover lost income, rental payments and employee payroll should your company need to close temporarily.
Group health insurance provides for medical, dental and vision benefits for employees.

Other business insurance premiums, including self-employed health or group life insurance, may also be tax-deductible. Consult a qualified income tax professional for guidance.

Which business insurance premiums are not tax-deductible?

Not all types of business insurance premiums qualify as tax-deductible, Roberts says. Examples of this include:

The business is directly or indirectly a beneficiary under a life insurance policy
The premiums are allocable to tax-exempt income (such as certain disability policies)
The arrangement constitutes self-insurance
The premiums are paid by a non-business creditor
The policy is used as collateral or where the business retains a beneficial interest
The premiums are for title insurance (which must be capitalized, or counted as an asset on your balance sheet rather than as an expense)
The premiums are paid to certain welfare benefit funds or other arrangements the IRS deems abusive

In addition, you cannot deduct premiums you have paid in advance. The IRS cites the following example in Publication 334 (2024), Tax Guide for Small Business:

“In 2024, you signed a 3-year insurance contract. Even though you paid the premiums for 2024, 2025, and 2026 when you signed the contract, you can only deduct the premium for 2024 on your 2024 tax return. You can deduct in 2025 and 2026 the premiums allocable to those years.”

Can you deduct car insurance for business use?

If you operate a vehicle solely for business purposes, the IRS says you may deduct “the entire cost of ownership and operation.” This includes the cost of commercial vehicle insurance and things like registration and licensing fees, repairs, tires, gas and oil.

However, suppose you drive your vehicle for both business and personal use. In that case, you must calculate the use percentage for each and then apply that to your business-related tax deductions.

For instance, if you drive for work 65% of the time and 35% of the time for personal use, you may only deduct 65% of the cost of your car insurance. The IRS says you must maintain adequate records or present sufficient evidence to support your write-offs. This includes bills, receipts and invoices.

Alternatively, you may use the IRS’s standard mileage rate for vehicle-related business expenses if you don’t want to itemize. But there’s a catch.

“If you use the standard mileage rate, you cannot deduct car insurance separately, as it is already included in the rate,” Roberts says.

For the 2025 tax year, the standard rate is 70 cents per mile, according to the IRS website.

Do you have to pay taxes on business insurance claims?

Roberts says that business insurance claim payouts may be taxable, but that depends on the kind of payout.

“You generally have to pay taxes on business insurance claim proceeds if they compensate for lost profits – such as business interruption insurance – or if the proceeds from casualty or theft insurance exceed the adjusted basis of the property, resulting in a gain,” she says.

A few examples of this are:

Business interruption insurance claims are taxable because they compensate for lost income and operating expenses that are incurred during normal operations.
Workers’ compensation claims are generally not considered taxable. However, the IRS says payouts for emotional distress without physical injury may be subject to taxation.
Property damage claims may be taxable if the payout exceeds the depreciated or actual cash value of the damaged items.

“However, life insurance proceeds paid to a business due to the death of an insured are usually not taxable, unless specific exceptions apply – such as certain employer-owned policies that do not meet notice and consent requirements or if the transfer-for-value rule applies,” Roberts says.

Rules about business insurance and tax deductions are complex. It’s best to consult with a qualified income tax professional if you have questions about whether you must pay taxes on a business insurance claim.

How do you report business insurance on your tax return?

The way your business is structured will dictate how you report expenses like insurance premiums on your tax return. According to IRS Publication 3402, there are two principal business structures: limited liability companies (LLCs) and sole proprietorships.

LLCs may be classified as corporations, partnerships or disregarded entities.

Corporations should use Form 1120, with each shareholder using Schedule K to report credits, deductions and income, while S-corporations should use Form 1120S.
Partnerships, which are LLCs with two or more members, should use Form 1065, and report credits, deductions and income on Schedule K.
Disregarded entities, which are single-member LLCs, should use Form 1040, the same as a sole proprietorship. Income and expenses should be reported on Schedule C, E or F (depending on business type).

Sole proprietorships are single-owner businesses. These individuals should use IRS Form 1040 to report income and expenses and list deductions on Schedule C.

What tax form should small business owners use

What our expert says

Q: Do you have to pay taxes on your insurance checks?

Gretchen Roberts CEO of Red Bike Advisors.

"You generally have to pay taxes on business insurance claim proceeds if they compensate for lost profits – such as business interruption insurance – or if the proceeds from casualty or theft insurance exceed the adjusted basis of the property, resulting in a gain."

Frequently asked questions

Why are business expenses tax-deductible?

Generally speaking, a business expense is considered tax-deductible if it is ordinary and normal. The IRS defines it this way: “An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be necessary.”

Can a business deduct parking expenses?

You can deduct the cost of parking fees and tolls if they are business-related, according to the IRS. For example, if you had to pay a bridge toll and a parking fee to visit a client, those fees would be considered deductible. However, you cannot deduct the cost of parking your vehicle at your place of work; the IRS regards that as a nondeductible commuting expense.

Do business expenses reduce taxable income?

Yes, business expenses that the IRS considers ordinary and normal can be deducted to reduce taxable income. This includes not only premiums for many forms of business insurance (such as commercial vehicle coverage) but also things like rent and leases, employee salaries and compensation, certain legal and professional fees, equipment maintenance and repair costs, and more. Consult a licensed tax professional for guidance.