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Insurance: Small-Business Taxes (2025 IRS Guide)

This guide covers “Insurance” within small-business taxes. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 334 (2025), Tax Guide for Small Business, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Insurance

You can generally deduct premiums you pay for the following kinds of insurance related to your business.

  1. Fire, theft, flood, or similar insurance.

  2. Credit insurance that covers losses from business bad debts.

  3. Group hospitalization and medical insurance for employees, including long-term care insurance.

  4. Liability insurance.

  5. Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients.

  6. Workers’ compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault.

  7. Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law.

  8. Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness.

  9. Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. If you use the standard mileage rate to figure your car expenses, you can’t deduct any car insurance premiums.

  10. Life insurance covering your employees if you are not directly or indirectly the beneficiary under the contract.

  11. Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause.

Nondeductible premiums.

You can’t deduct premiums on the following kinds of insurance.

  1. Self-insurance reserve funds. You can’t deduct amounts credited to a reserve set up for self-insurance. This applies even if you can’t get business insurance coverage for certain business risks. However, your actual losses may be deductible. For more information, see Pub. 547.

  2. Loss of earnings. You can’t deduct premiums for a policy that pays for your lost earnings due to sickness or disability. However, see item 8 in the previous list.

  3. Certain life insurance and annuities.

    1. For contracts issued before June 9, 1997, you can’t deduct the premiums on a life insurance policy covering you, an employee, or any person with a financial interest in your business if you are directly or indirectly a beneficiary of the policy. You are included among possible beneficiaries of the policy if the policy owner is obligated to repay a loan from you using the proceeds of the policy. A person has a financial interest in your business if the person is an owner or part owner of the business or has lent money to the business.

    2. For contracts issued after June 8, 1997, you generally can’t deduct the premiums on any life insurance policy, endowment contract, or annuity contract if you are directly or indirectly a beneficiary. The disallowance applies without regard to whom the policy covers.

  4. Insurance to secure a loan. If you take out a policy on your life or on the life of another person with a financial interest in your business to get or protect a business loan, you can’t deduct the premiums as a business expense. Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt.

Self-employed health insurance deduction.

You may be able to deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for you and your family.

How to figure the deduction.

Generally, you can use the worksheet in the Instructions for Form 1040 to figure your deduction. However, if any of the following apply, you must use Form(s) 7206.

  • You have more than one source of income subject to SE tax.

  • You file Form 2555 (relating to foreign earned income).

  • You are using amounts paid for qualified long-term care insurance to figure the deduction.

See Form 8962 and its separate instructions and use Pub. 974 if the insurance plan established, or considered to be established, under your business was obtained through the Health Insurance Marketplace and you are claiming the premium tax credit.

Prepayment.

You can’t deduct expenses in advance, even if you pay them in advance. This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current-tax year.

Example.

In 2025, you signed a 3-year insurance contract. Even though you paid the premiums for 2025, 2026, and 2027 when you signed the contract, you can only deduct the premium for 2025 on your 2025 tax return. You can deduct in 2026 and 2027 the premiums allocable to those years.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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