Life insurance not only provides protection, but also saving or investing. This means that we can accumulate, multiply, but also inherit funds. Are term life insurance premiums tax deductible?
Life insurance premiums are not deductible for private individuals. They are considered a personal cost and therefore are not tax deductible. From the IRS’s point of view, paying life insurance premiums is like buying a car, cell phone, or other product or service.
For self-employed
Your contributions can be tax deductible if you use life insurance as a means of protecting business assets, such as office space or other capital. Life insurance cannot be written off as a business expense, it is not considered as a necessary business cost, so you will not be able to deduct the premiums paid for protection.
Costs incurred and costs of securing the source of income
Costs incurred to maintain the source of income are the costs that were incurred so that revenue from a given source of revenue would continue to be obtained and that such source would continue to exist.
On the other hand, the costs used to secure the source of revenue should be the costs incurred to protect the existing source of revenue in a way that guarantees the safe functioning of that source.
Therefore, the essence of this type of costs is their obligatory incurring in order to prevent future loss of income.
Therefore, if a taxpayer, while conducting business activity, buys a life insurance policy, which is to constitute a collateral in the event of an accident and, accordingly, the inability to conduct business activity, he may consider that it is an expenditure indirectly securing the source of income.
What are the exceptions for individuals?
The bad news for individuals is that their life insurance contributions are mostly not tax deductible. Here are two basic exceptions to this rule:
Maintenance: Spouses who pay maintenance can take out a life insurance policy to cover payments in the event of their death. Contributions to this type of policy can be tax deductible.
Charitable life insurance: The same applies to a life insurance policy belonging to a charity. The insured gives donations to charity in an amount equal to their contributions, and then deducts the contributions.
These are the only two basic situations for people who can deduct life insurance premiums. Otherwise, contributions will not be deductible.
