Page 83 - Small Business Taxes

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Fileid: … tions/p535/2022/a/xml/cycle01/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
a month to participate in any subsidized health the discussion on overhead insurance, 1. Produce real property or tangible personal
plan maintained by the employer of either your item (8), under Deductible Premiums, ear- property. For this purpose, tangible per-
dependent or your child who was under age 27 lier. sonal property includes a film, sound re-
at the end of 2022, don’t use amounts paid for 3. Certain life insurance and annuities. cording, videotape, book, or similar prop-
coverage for that month to figure the deduction. erty.
These rules are applied separately to plans a. For contracts issued before June 9, 2. Acquire property for resale.
that provide long-term care insurance and plans 1997, you can’t deduct the premiums
that don’t provide long-term care insurance. on a life insurance policy covering However, these rules don't apply to the follow-
However, any medical insurance payments not you, an employee, or any person with ing property.
deductible on Schedule 1 (Form 1040), line 17, a financial interest in your business if 1. Personal property you acquire for resale if
can be included as medical expenses on you are directly or indirectly a benefi-
Schedule A (Form 1040) if you itemize deduc- ciary of the policy. You are included your average annual gross receipts are
$27 million or less for the 3 prior tax years.
tions. among possible beneficiaries of the
policy if the policy owner is obligated 2. Property you produce if you meet either of
Effect on itemized deductions. Subtract the to repay a loan from you using the the following conditions.
health insurance deduction from your medical proceeds of the policy. A person has
insurance when figuring medical expenses on a financial interest in your business if a. Your indirect costs of producing the
Schedule A (Form 1040) if you itemize deduc- the person is an owner or part owner property are $200,000 or less.
tions. of the business or has lent money to b. You use the cash method of account-
the business. ing and don't account for inventories.
Effect on self-employment tax. You can’t
subtract the self-employed health insurance de- b. For contracts issued after June 8, More information. For more information on
1997, you generally can’t deduct the
duction when figuring net earnings for your these rules, see Uniform Capitalization Rules in
self-employment tax from the business under premiums on any life insurance policy, Pub. 538 and the regulations under section
endowment contract, or annuity con-
which the insurance plan is established, or con- 263A.
sidered to be established, as discussed earlier. tract if you are directly or indirectly a
beneficiary. The disallowance applies
For more information, see Schedule SE (Form
1040). without regard to whom the policy When To Deduct
covers.
How to figure the deduction. Generally, you c. Partners. If, as a partner in a partner- Premiums
can use the worksheet in the Form 1040 in- ship, you take out an insurance policy
structions to figure your deduction. However, if on your own life and name your part- You can usually deduct insurance premiums in
any of the following apply, you must use Work- ners as beneficiaries to induce them the tax year to which they apply.
sheet 6-A in this chapter. to retain their investments in the part-
• You had more than one source of income nership, you are considered a benefi- Cash method. If you use the cash method of
subject to self-employment tax. ciary. You can't deduct the insurance accounting, you generally deduct insurance
• You file Form 2555. premiums. premiums in the tax year you actually paid
• You are using amounts paid for qualified them, even if you incurred them in an earlier
long-term care insurance to figure the de- 4. Insurance to secure a loan. If you take out year. However, see Prepayment, later.
duction. a policy on your life or on the life of an-
other person with a financial interest in Accrual method. If you use an accrual
More than one health plan and business. your business to get or protect a business method of accounting, you can't deduct insur-
If you have more than one health plan during loan, you can't deduct the premiums as a ance premiums before the tax year in which you
the year and each plan is established under a business expense. Nor can you deduct incur a liability for them. In addition, you can't
different business, you must use separate work- the premiums as interest on business deduct insurance premiums before the tax year
sheets (Worksheet 6-A) to figure each plan's loans or as an expense of financing loans. in which you actually pay them (unless the ex-
net earnings limit. Include the premium you paid In the event of death, the proceeds of the ception for recurring items applies). For more
under each plan on line 1 or line 2 of that sepa- policy are generally not taxed as income information about the accrual method of ac-
rate worksheet and your net profit (or wages) even if they are used to liquidate the debt. counting, see chapter 1. For information about
from that business on line 4 (or line 11). For a the exception for recurring items, see Pub. 538.
plan that provides long-term care insurance, the
total of the amounts entered for each person on Capitalized Premiums Prepayment. You can't deduct expenses in
line 2 of all worksheets can’t be more than the advance, even if you pay them in advance. This
appropriate limit shown on line 2 for that per- Under the uniform capitalization rules, you must rule applies to any expense paid far enough in
son. capitalize the direct costs and part of the indi- advance to, in effect, create an asset with a
rect costs for certain production or resale activi- useful life extending substantially beyond the
Nondeductible ties. Include these costs in the basis of property end of the current tax year.
Expenses such as insurance are generally
you produce or acquire for resale, rather than
Premiums claiming them as a current deduction. You re- allocable to a period of time. You can deduct in-
cover the costs through depreciation, amortiza- surance expenses for the year to which they are
You can’t deduct premiums on the following tion, or cost of goods sold when you use, sell, allocable.
or otherwise dispose of the property.
kinds of insurance. Example. In 2022, you signed a 3-year in-
1. Self-insurance reserve funds. You can’t Indirect costs include premiums for insur- surance contract. Even though you paid the
deduct amounts credited to a reserve set ance on your plant or facility, machinery, equip- premiums for 2022, 2023, and 2024 when you
up for self-insurance. This applies even if ment, materials, property produced, or property signed the contract, you can only deduct the
you can’t get business insurance cover- acquired for resale. premium for 2022 on your 2022 tax return. You
age for certain business risks. However, can deduct in 2023 and 2024 the premiums al-
your actual losses may be deductible. See Uniform capitalization rules. You may be locable to those years.
Pub. 547. subject to the uniform capitalization rules if you
do any of the following, unless the property is
2. Loss of earnings. You can’t deduct premi- produced for your use other than in a business Dividends received. If you receive dividends
from business insurance and you deducted the
ums for a policy that pays for lost earnings or an activity carried on for profit. premiums in prior years, at least part of the divi-
due to sickness or disability. However, see dends are generally income. For more

Page 24 Chapter 6 Insurance