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Brenda Guy
Brenda Guy, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 151
Experience:  20 years of working with income and estate tax issues for families and businesses.
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When is the cost of life insurance deductible Are benefits

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When is the cost of life insurance deductible? Are benefits from life insurance taxable is the beneficiary is a person? If the beneficiary is an LLC?

The cost of life insurance is never deductible. Benefits are not usually taxable. However there are situations where they are taxable. The most common situation where life insurance benefits are taxable is where a person or company sells the policy to another person on company. This is called a transfer for value and will make the proceeds taxable to the new owner when received.

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Customer: replied 6 years ago.

If the life insurance is paid by an LLC to cover the demise of its principal, being the LLC the beneficiary, are the premiums considered an business expense?

 

If it is paid by a company as a fringe benefit to an officer or employee, would it be deductible to the company although taxable to the beneficiary and, in that case, using what value as a base?

Life insurance premiums paid by the LLC are business expense but not tax deductible.

 

If paid as a fringe benefit it would be deductible to the company as long as the policy was owned by the officer or employee and not the company. The value is the actual dollars paid for the premium.

Customer: replied 6 years ago.
If the policy is owned by a sole propietor with his heirs as beneficiaries and the business pays the premium, is it considered a business expense?

No, Life insurance premiums are never a deductible business expense. It is not deductible because the proceeds are not taxable.

Customer: replied 6 years ago.

This is what confuses me, I am quoting from two different answers.

 

"If paid as a fringe benefit it would be deductible to the company as long as the policy was owned by the officer or employee and not the company. The value is the actual dollars paid for the premium."

 

"No, Life insurance premiums are never a deductible business expense. It is not deductible because the proceeds are not taxable."

 

The proceeds would not be taxable either if paid as a fringe benefit yet the first quote states it would be deductible if paid by the company as a fringe benefit. I am confused and need to know how to structure it to make it deductible as a business expense in sole proprietorship or an LLC, be it one-menber or multi-member LLC.

The difference that when you pay as a fringe benefit it is income to the employee and they own the policy. The company does not benefit from the life insurance.

You cannot make it deductible as a business expense for a sole proprietor in any situation. It doesn't work.