 Income tax 2021-2022. Business expenses. Insurance. Get ready to get refunds to the max. Dive it into income tax 2021-2022. Most of this information can be found in Publication 334, Tax Guide for Small Business Tax Year 2021. Income tax formula, line one income, would be supplemented with another schedule that being basically an income statement which has income and expenses. We're focused in on the expenses. Expenses basically being deduction. The net of that schedule rolling into line one income of the income tax formula as well as the form 1040 page one. We see here where we would have the schedule C bottom line rolling into schedule one bottom line of the schedule one rolling into page one of the form 1040 line number eight. This is the schedule C basically an income statement. We're now looking at insurance. So in general, the same rule applies. We're looking at the ordinary and necessary expenses. So there's going to be the types of insurance that may be deductible. So you can generally deduct premiums you pay for the following kinds of insurance related to your business. Number one, fire theft, flood or similar types of insurance. Number two, credit insurance that covers losses from business bad debt. Number three, group hospitalization and medical insurance for employees, including long term care insurance. Number four, liability insurance of course. Number five, malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. Number six, workers compensation insurance set by state law that covers any claims for bodily injury or job related diseases suffered by employees in your business regardless of fault. So as we look at these insurances, we could see that these types of things would be tied to the business, possibly ordinary and necessary, which ones would be most applicable to your business will of course depend on your particular business that you're going to end what kind of insurance are you going to be needing within the business that you are in. So number seven, contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under the state law. Number eight, overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. Number nine, car or other vehicle insurance that covers vehicles used in your business for liability damage and other losses. This one be a little careful on the insurance here because you want to make sure when you're looking at the bookkeeping and the deductibility like what category you're putting the insurance in and not like double dip it between the auto expenses and basically the insurance here. So if you operate a vehicle personally for personal use and when I say double dip meaning deduction twice for the same thing like automobile insurance that was included in the auto expense and possibly under the insurance category. Here we go. If you operate a vehicle partially for personal use deduct only the part of the insurance premiums that applies to the business use of the vehicle. If you use the standard mileage rate to figure your car expense, you cannot deduct your car insurance premiums. Once again, if you use the standard mileage rate to figure your car expense, you cannot deduct the car insurance premiums. So with the car, you got the different methods that we can use the actual method or the standard method. So you could take a look. We looked at that in prior presentations. You could take a look at that in more detail if you so choose. So number 10, life insurance covering your employees if you are not directly or indirectly the beneficiary under the contract. So that's the general rule, the exception if you're the beneficiary there. Number 11, business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. Non deductible premiums. You cannot deduct premiums on the following kinds of insurance. So what kind of insurance isn't deductible? You might ask at this point after that long list we just went through. Number one, self insurance reserve funds. So self insurance reserve funds. You cannot deduct amounts credited to a reserve set up for self insurance. So you're kind of trying to set up your own insurance fund. So they're not going to give you the deduction for that. This applies even if you cannot get business insurance coverage for certain business risks. However, your actual losses may be deductible. Well, that's great. After you actually have the loss, then yeah, then you can deduct at that point. So for more information, you could see publication 547 casualties, disaster and number two, loss of earnings. You cannot deduct premiums for a policy that pays for your lost earnings due to sickness or disability. However, see items eight in the previous list. Number three, certain life insurance and annuities. A, for contracts issued before June 9th, 1997. You cannot deduct the premiums on a life insurance policy covering you and employee or any person with a financial interest in your business. If you are directly or indirectly a beneficiary of the policy, you are included among possible beneficiaries of the policy. If the policy owner is obligated to repay a loan from you using the proceeds of the policy, a person has a financial interest in your business if the person is an owner or part owner of the business or has lent money to the business. B, for contracts issued after June 8th, 1997. You generally cannot deduct the premiums on any life insurance policy endowment contract or annuity contract. If you are directly or indirectly a beneficiary, the disallowance applies without regard to whom the policy covers. Number four, insurance to secure a loan. If you take out a policy on your life or on the life of another person with a financial interest in your business to get or protect a business loan, you cannot deduct the premiums as a business expense, nor can you deduct the premiums as interest on business loans or as an expense of financing loans. In the event of death, the proceeds of the policies are not taxed as income, even if they are used to liquidate the debt. Self-employed health insurance deduction. Now we've got that self-employment deduction. You may be able to deduct the amount you paid for the medical and dental insurance and qualified long-term insurance for you and your family. Now, this is the one that gets a little bit more complex because there might be some restrictions to it. You might not take that deduction on the Schedule C. We looked at this a little bit when we were looking at the adjustments to income. You might be able to take that as like an above the line deduction or deduction for adjusted gross incomes if you qualify for it. So how to figure the deduction? Generally, you can use the worksheet and the instructions for Form 1040 to figure your deduction. So when you're looking at the Form 1040 instructions instead of the Schedule C, because it's going to be on the 1040 and it's going to be flowing through to the 1040 from the Schedule 1. And so you might find further instructions or we'll find further instructions there. However, if any of the following apply, you must use the worksheet in Chapter 6 of Publication 535. So if it's more complex in these ways, then you've got to go to Chapter 6. You have more than one source of income subject to self-employment tax. So you file Form 2555 related to foreign-earned income or you are using amounts paid for qualified long-term insurance to figure the deduction. You could use Publication 974 instead of the worksheet in the instructions for Form 1040 if the insurance plan established or considered to be established under your business was obtained through the Health Insurance Marketplace and you are claiming the premium tax credits. So the payment, you cannot deduct expenses in advance even if you pay them in advance. So you can't deduct the advance payments. You can't try to prepay and get the benefit from that. This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extended substantially beyond the end of the current year. So anytime you have a cash basis kind of thing, then you have the ability to kind of distort it by making a prepayment possibly trying to get the deduction earlier. That's what the government or IRS is going to be skeptical of doing and possibly giving limitations upon. Example, in 2021, you signed a three-year insurance contract even though you paid the premiums for 2021, 2022 and 2023. When you signed the contract, you can only deduct the premiums for 2021 on your 2021 tax return. You cannot deduct the 2022 and 2023, the premiums allocated to those years. Sorry, you can deduct in 2022 and 2023 the premiums that are allocated to those years. So for more information, you can take a look at about deducting insurance. You can see Chapter 6 of Publication 535. You can find on the IRS website.