Deducting life insurance premiums for an agent

Technical topics regarding tax preparation.
#1
Posts:
287
Joined:
1-Jul-2014 9:25am
Location:
michigan
I know that deducting life insurance premiums are not usually an expense.

My client is a life insurance agent who is considered a statutory employee. He receives a w-2, puts that on a Schedule C and deducts all of his business expenses on the Schedule C.

He "claims" his boss told him as a condition of employment he has to buy life insurance policies on himself and his family. He was told he could claim these as a business expense since it was a condition of his employment . Of course his boss will not provide him with any thing in writing to back up claiming the premiums as a business expense.

Anyone have experience with life insurance agents claiming this expense?. Thanks
 

#2
Nilodop  
Posts:
18751
Joined:
21-Apr-2014 9:28am
Location:
Pennsylvania
When we were younger, my wife worked as a real estate salesperson. We bought a house through her agency. I think we failed to claim that house even though they told her it was a requirement.
Last edited by Nilodop on 22-Jan-2020 9:34am, edited 1 time in total.
 

#3
Posts:
2611
Joined:
24-Jan-2019 2:16pm
Location:
North Shore, Oahu
So does any life insurance payoff become taxable then? And wouldn't it need to be reported on his W2 when it's paid?

It does not "feel" deductible to me. I would be thinking "let his boss do his taxes then" - but I never actually say that to clients.

Not sure it's legal for his boss to mandate that either, but I'm certainly no labor attorney (and each state might be different).
 

#4
Posts:
287
Joined:
1-Jul-2014 9:25am
Location:
michigan
ItDepends

Some of my same thoughts. I was just looking to see if anyone had any different thoughts.
 

#5
LW25  
Posts:
1043
Joined:
15-Jun-2017 8:48pm
Location:
Texas
The fact that life insurance premiums are a business expense does not make them deductible for Federal income tax purposes. There are lots of ordinary and necessary business expenses -- that would otherwise be deductible under section 162 -- that (because of some other Internal Revenue Code provision) are not deductible.

Being required to buy life insurance as a condition of employment does not in and of itself make the premium be deductible as a business expense. No deduction is allowed for premiums on a life insurance policy if the taxpayer is directly or indirectly a beneficiary under the policy. See section 264(a)(1).
 

#6
LW25  
Posts:
1043
Joined:
15-Jun-2017 8:48pm
Location:
Texas
More from the Code:

In computing taxable income under section 63, there shall be allowed as deductions the items specified in this part [i.e., in part VI of subchapter B of chapter 1 of subtitle A of the Code, consisting of sections 161 through 199A], subject to the exceptions provided in part IX (sec. 261 and following, relating to items not deductible).


---IRC section 161 (emphasis added).

Although some business expenses are generally deductible under section 162, we have to keep reading other relevant provisions of the Code:

In computing taxable income[,] no deduction shall in any case be allowed in respect of the items specified in this part [i.e., in part IX of subchapter B of chapter 1 of subtitle A of the Code, consisting of sections 261 through 280H].


--IRC section 261 (emphasis added).

Section 264, relating to non-deductibility of life insurance premiums where the taxpayer is directly or indirectly a beneficiary, is of course found in part IX.

The Internal Revenue Code is a gigantic puzzle consisting of millions of words, but we can put the pieces together if we read enough of it.
 

#7
LW25  
Posts:
1043
Joined:
15-Jun-2017 8:48pm
Location:
Texas
I remember having a conversation with one of my former law school classmates who practiced criminal defense law and family law, where she became upset when I explained to her that campaign contributions to a local state judge were not deductible by her as part of her business of the practice of law. She explained that making political contributions was an important business expense.

I had to explain to her that the mere fact that the contribution is an ordinary and necessary business expense does not necessarily make it deductible.

Congress giveth. Congress taketh away. Congress giveth with strings attached. Congress giveth with exceptions tucked away in obscure corners of the Internal Revenue Code.
 

#8
Posts:
287
Joined:
1-Jul-2014 9:25am
Location:
michigan
Thanks LW25 I appreciate all of your efforts.

I didn't really think it was a business expense but when a new client tells you his previous accountant let him deduct the premiums as an expense makes you wonder if you are missing something.
 

#9
LW25  
Posts:
1043
Joined:
15-Jun-2017 8:48pm
Location:
Texas
davidlat wrote:Thanks LW25 I appreciate all of your efforts.

I didn't really think it was a business expense but when a new client tells you his previous accountant let him deduct the premiums as an expense makes you wonder if you are missing something.


Exactly. Sometimes a client or someone else will ask a question where I think I should know the answer because the question sounds so basic, but I have to look do a little research to be sure about what the answer is.

I may be weird, but I enjoy the complexity of what we as tax practitioners have to deal with.
 


Return to Taxation



Who is online

Users browsing this forum: AlexCPA, dellpaul, Google [Bot], Google Adsense [Bot] and 71 guests