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Ask Christopher Phelps Your Own Question
Christopher Phelps
Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience:  CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
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Is disability insurance tax deductible to a business

Customer Question

I want to know if disability insurance is tax deductible by a business.
Submitted: 9 years ago.
Category: Tax
Expert:  Christopher Phelps replied 9 years ago.

Yes, its a deductible expense. However, if you ever collect benefits under the plan, they will be taxable. If the disability insurance is provided on an after-tax basis (i.e. by including the cost of the premium in your salary), then the benefits paid would be tax-free.

Because it is impossible for me to identify and consider ALL the relevant facts, this advice is not intended or written to be used for the purpose of avoiding penalties, and cannot be used for that purpose.

Customer: replied 9 years ago.
Does it matter it it's a sole proprietor ship, s or c corp or parnership. I read in IRS Publication 535 http://www.irs.gov/pub/irs-pdf/p535.pdf that it is not tax deductible unless it's considered "overhead insurance" so I am confused.
Expert:  Christopher Phelps replied 9 years ago.

If your self-employed (i.e. sole proprietorship/partnership/S corp more then 2% shareholder) then its not going to be deductible. If your an employee of a C corporation then you may offer it as a tax-free fringe benefit to all employees, including yourself (although benefits paid would be taxable).

I should have pointed that out in my previous post.

Because it is impossible for me to identify and consider ALL the relevant facts, this advice is not intended or written to be used for the purpose of avoiding penalties, and cannot be used for that purpose.

Customer: replied 9 years ago.
I read that the partnership can write it off the but the partners cannot?
Expert:  Christopher Phelps replied 9 years ago.

You may deduct disability insurance premium payments made for partnership employees. The same goes for S Corps.

Because it is impossible for me to identify and consider ALL the relevant facts, this advice is not intended or written to be used for the purpose of avoiding penalties, and cannot be used for that purpose.

Customer: replied 9 years ago.
I thought you said that s corp more than 2% shareholder is not tax deductible, do you mean s corp more than 2% shareholder non employee, only a shareholder?
Expert:  Christopher Phelps replied 9 years ago.

A S corp could deduct disability insurance premiums for employee's who are not more then 2% shareholders. More then 2% shareholders are treated the same as partners in partnerships.

Because it is impossible for me to identify and consider ALL the relevant facts, this advice is not intended or written to be used for the purpose of avoiding penalties, and cannot be used for that purpose.

 

Customer: replied 9 years ago.
Reply to Christopher Phelps's Post: If you live in an extended stay hotel, can you write it off 100%?
Expert:  Christopher Phelps replied 9 years ago.

Unless you are working in a temporary location away from your regular home for business purposes and your temporary assignment is expected to last less then one year, then your extended stay residence expenses are non-deductible.

Because it is impossible for me to identify and consider ALL the relevant facts, this advice is not intended or written to be used for the purpose of avoiding penalties, and cannot be used for that purpose.