Is business insurance deductible?

The short answer, and what it depends on

Publication 334 is the IRS’s plain-language guide for sole proprietors, single-member LLC owners and statutory employees who file Schedule C. Its Insurance section starts with a general permission: you can generally deduct the premiums you pay for the kinds of insurance related to your business, and it then lists the kinds. The word “related” matters. A premium is deductible because it protects something in the business, not because it is called business insurance on a quote. A policy that covers your home is personal even if you work from a spare room; a policy that covers a vehicle you also drive for personal errands is deductible only for the business share.

The practical test is therefore two questions in order. First, is this one of the listed business kinds, or a close cousin of one? Second, is it on the short list of premiums the publication says you cannot deduct? If the answer is yes and then no, the premium is a business expense for the year it applies to.

Premiums the publication says you can generally deduct

The list in the 2025 edition covers fire, theft, flood or similar insurance; credit insurance that covers losses from business bad debts; group hospitalization and medical insurance for employees, including long-term care insurance; liability insurance; malpractice insurance that covers your personal liability for professional negligence; workers’ compensation insurance set by state law; contributions to a state unemployment insurance fund when state law treats them as taxes; overhead insurance that pays business overhead during a long disability; vehicle insurance for vehicles used in the business; life insurance on your employees when you are not directly or indirectly the beneficiary; and business interruption insurance that pays for lost profits when a fire or similar event shuts the business down.

Two of those carry their own wrinkle. Vehicle insurance on a car you use partly for personal purposes is deductible only for the business-use part, and if you take the standard mileage rate for the car you cannot deduct any car insurance premiums at all, because the mileage rate is meant to cover insurance. Overhead insurance is the cover that pays rent and similar fixed costs while you are disabled; the premium for it is deductible even though a different policy replacing your own earnings is not.

Premiums you cannot deduct

Publication 334 names four. Amounts credited to a reserve you set up for self-insurance are not deductible, even if no insurer will write cover for that risk; actual losses may be deductible, which the publication points to Publication 547 for. Premiums for a policy that pays your lost earnings during sickness or disability are not deductible either. Life insurance and annuities are restricted: for contracts issued after June 8, 1997 you generally cannot deduct premiums on any life insurance, endowment or annuity contract if you are directly or indirectly a beneficiary, whoever the policy covers. And a life insurance policy taken out to secure a business loan is not deductible, either as a business expense or as interest, although the death benefit is not taxed even when it pays off the debt.

Note what is missing from the nondeductible list: health insurance for you and your family is not on it. That cover is handled by the separate self-employed health insurance deduction, which the publication describes right after the list. It is figured on the Form 1040 worksheet or on Form 7206, not as an ordinary business expense line. Employee health cover, by contrast, is on the deductible list.

The prepayment rule, with a worked example

You cannot deduct an expense early just because you paid early. Publication 334 says this applies to any expense paid far enough in advance to, in effect, create an asset with a useful life that extends substantially beyond the end of the current tax year. Its own example: in 2025 you sign a three-year insurance contract and pay all three years of premiums. You deduct only the 2025 premium on the 2025 return and the rest in 2026 and 2027.

The cash-method chapter gives a second example: you pay $1,000 in 2025 for a one-year policy starting July 1. You deduct $500 in 2025 and $500 in 2026, because six of the twelve months fall in each year. The calculator above does that arithmetic. Enter the premium, the total months of coverage, and the months that fall in this tax year, and it returns the current-year deduction and the amount carried to later years. Try $1,000, 12 months and 6 months to reproduce the publication’s example.

Where this fits in your return

Business insurance other than health insurance is an ordinary Schedule C expense, so it reduces both income tax and self-employment tax. The deductible premium lowers your net profit, and the self-employment tax rate in the same publication is 15.3 percent on net earnings (12.4 percent social security plus 2.9 percent Medicare). On $1,500 of deductible premiums, the federal self-employment tax saving alone is therefore roughly $212 before counting the 92.35 percent adjustment that applies to net earnings, with income tax savings on top. Those figures are an illustration of how the rate works, not a prediction for your return.

Keep the policy declarations page and proof of payment. If a policy bundles business and personal cover, such as a package that includes both a home and a studio, ask the agent for a written allocation so that the business part is documented.

Limits of this page

This page covers sole proprietors and the Schedule C rules in Publication 334. Corporations, partnerships and employers with benefit plans have additional rules. Nothing here decides whether a particular premium is ordinary and necessary for your trade or business; that is a facts-and-circumstances question for you and your preparer. For the related rule on how business debt interest works, read is business loan interest deductible, and for the accounting-method rules behind the prepayment example read cash or accrual accounting.

Sources

• IRS Publication 334, Tax Guide for Small Business (2025): Insurance, in chapter 8 (Business Expenses). Page last reviewed or updated by the IRS April 30, 2026. Read November 2, 2026.

Edition read: Publication 334 (2025), for use in preparing 2025 returns. Dollar limits and thresholds quoted on this page are for 2025 and can change; check the current publication and form instructions for your tax year. This page summarizes the publication and does not replace it. Marked for human review.