Real Estate Agents can deduct many forms of insurance on Schedule C, Profit and Loss from Business. This article will discuss premiums deducted on Line 15 of Schedule C, Insurance (other than health). It will share some forms of coverage deducted on different lines of Schedule C and provide an overview of self-employed health insurance. This article also covers types of insurance not deductible on Line 15, and one form of coverage an owner should not deduct, even when allowed.
Insurance (other than health), Line 15: Several forms of insurance are deducted as Insurance (other than health). Deductible policies protect the business from losses related to business errors, property damage, accidents on business property, and other unforeseen mishaps. Here’s a brief overview of insurance deducted on Line 15:
- Errors and Omission Insurance: The most common form of business insurance that Real Estate Agents purchase is Errors and Omissions Insurance (E&O). E&O Insurance is a type of malpractice insurance that protest agents from the consequences (less a deductible, of course) of a mistake made or negligence on the part of the agents when performing their professional duties. Many states and brokers require agents to have E&O insurance. Errors and Omission insurance is also called Professional Liability Insurance.
- Premises Insurance: Premiums paid to insure a building used for business (other than a home office, see below) against damage caused by fire, wind, flood. Such insurance may also provide personal property coverage (equipment, furniture, and fixtures), general liability for accidents, and medical payment for physical injury.
- Property Insurance: If you rent an office for your business or, perhaps, a storage unit to store equipment and signs, this insurance covers for damage to personal property at the location(s) covered. Deduct premiums for this form of insurance on Line 15.
- General Liability Insurance: This form of insurance covers physical injury and property damage caused while performing professional duties. It may also provide protection from liability arising from advertising and personal injuries such as libel, slander, or copyright violation.
- Business Owner’s Policy (BOP): A business owner’s policy is a comprehensive form of business insurance that covers many of the same risks as those listed above. BOPs can also replace income lost due to business interruption and even accounts receivable.
- Worker’s Compensation Insurance: Premiums paid for Worker’s Compensation Insurance, which covers the cost of work-place injuries. Although a sole proprietor can often opt-out of coverage, some states and contractors require coverage on all workers, including the owner. Premiums for worker’s compensation insurance are deductible, even if only covering the owner.
Insurance NOT Deducted as Insurance on Line 15: Several forms of coverage are deducted other lines of Schedule C or other areas of the agent’s tax return, and not on Line 15. Here are a few:
- Employee Health Insurance: Deduct health insurance premiums paid on behalf of employees on Line 14 of Schedule C, Employee Benefits. For more information, check out our article on Employee Benefits.
- Owner’s Health Insurance: Health insurance premiums paid for you, your spouse, and dependents are deducted as Self-Employed Health Insurance, an adjustment to income on Form 1040.
If the owner is receiving social security, Medicare premiums deducted from their Social Security checks are also deductible as Self-Employed Health Insurance.
The Self-Employed Health Insurance adjustment is limited to business income minus ½ of self-employment tax and contributions to the owner’s Simplified Employee Pensions, SIMPLE IRA, or a qualified retirement plan.
- Auto Insurance:Insurance for business auto insurance is not deductible as insurance on line 15. It is deducted as an auto expense if the owner is deducting actual auto expenses on Schedule C. For more information on deducting auto insurance and actual auto expenses, please read our article Real Estate Agent – Actual Auto Expense Method.
- Unemployment Insurance:It would be logical to assume that premiums paid to compensate employees who lose their jobs is insurance. Unfortunately, taxation is not always consistent (or even common-sensical). The IRS does not consider the cost of Unemployment Compensation to be insurance, deductible on Line 15, or an Employee Benefit deducted on Line 14. The next logical question? Where, then, do we deduct unemployment premiums? The answer depends on whom you ask. Some professionals deduct unemployment as a Tax on Line 23, Taxes and Licenses. Others argue that Unemployment is an Other Expense, deducted on Line 27. In my opinion, it is a tax - required by law and generally calculated as a percentage of an employee’s pay.
- Home Office: The insurance policy covering the home also protects the office inside that home. Homeowner’s insurance premiums is an indirect expense on Form 8829, Expenses for Business Use of Your Home. The amount deducted will depend on the percentage of the dwelling occupied by the home office. For more information, please read our article, Real Estate Agents: Home Office Actual Cost Method.
Insurance You Do Not Want to Deduct: Disability Insurance: The treatment of disability premiums has a direct impact on the taxability of benefits paid by the policy. If the business pays the premiums tax-free for an employee’s policy, any benefits received are COMPLETELY TAXABLE to the insured. Benefits are also taxable when premiums are deducted from an employee’s pay pretax (as through a cafeteria plan). If, on the other hand, business-paid premiums are added as income to the employee’s W2 or paid by the employee with after-tax dollars, benefits received by the insured employee are TAX-FREE.
Premiums paid for an owner’s disability policy is not deductible on Schedule C or as a Self-Employed Insurance adjustment on Form 1040. Mistakenly deducting these payments can result in benefits being taxable.
Take Away: Many types of insurance paid by a real estate agent for their business are deductible as Insurance on Schedule C, Line 15. Other business policies are deducted elsewhere on Schedule C. Premiums paid for the owner’s health insurance are deducted as an adjustment to income on Form 1040. One should refrain from deducting disability insurance premiums or paying them with pre-tax dollars. Doing so may result in policy benefits being taxable.
Summary and Invite: We hope this article helped you to understand the costs deductible on Line 15 as Insurance. If you’d like to learn more about cutting your most significant expense, TAXES, check out our Real Estate Agent Tax Cut Library. The Real Estate Agent Tax Cut Library includes over eight hours of video broken into twenty-nine searchable volumes and covers every possible deduction a Real Estate Agent can take on their tax return. Our Broker Version will help your entire agency cut their taxes! We also invite you to browse our courses.