Life Insurance Premium IRS Deduction

URDRWHO

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Ok, maybe things change over the years and it has been a long time since I was active in life insurance.

Back when I was active in life sales there were times that companies tried to deduct individual life insurance premiums from taxes. If I remember it was IRS publication 529 that spelled out premiums on individual policies were never a deductible expense, it didn't matter if required by contract or any other circumstances.

So today I met with two owners that want to buy life insurance for a buy sell. I felt that life premiums are not deductible but the attorney thought they could be deductible. The attorney is going to investigate....I guess he wasn't 100% sure about it.

Tax law does change and I am wondering if deductibality of premiums has changed? I am thinking (yes I know proceeds can be included for estate tax calculations) if proceeds are tax free, premiums are not going to be a deductible item.

Has my brain forgotten or have tax laws changed? :err:
 
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...Back when I was active in life sales there were times that companies tried to deduct individual life insurance premiums from taxes. If I remember it was IRS publication 529 that spelled out premiums on individual policies were never a deductible expense, it didn't matter if required by contract or any other circumstances.

So today I met with two owners that want to buy life insurance for a buy sell. I felt that life premiums are not deductible but the attorney thought they could be deductible. The attorney is going to investigate....I guess he wasn't 100% sure about it.

Tax law does change and I am wondering if deductibality of premiums has changed? I am thinking (yes I know proceeds can be included for estate tax calculations) if proceeds are tax free, premiums are not going to be a deductible item...


I have heard of some accountants treating buy/sell premiums as a business expense. This is a definite grey area in my opinion.

Its best to tell your clients to let their accountant or tax attorney make this call since they are the ones who will have to explain it to the IRS, not you. I would tell your clients that exact statement.

IRC 529 dos not contain any wording (that im aware of) to allow deductions of life insurance premiums.

The IRC code that dictates deductible business expenses (cant think of the number right now) contains wording that some accountants and tax attorneys argue: allows the deduction of life insurance premiums if used for "business purposes", not for personal needs.
So like I said, its a grey area.

but...

IRC 162 allows the deduction of life insurance premiums as a "fringe benefit" if paid as a cash bonus to the employee and then the employee officially pays the premiums.
The employee is liable for taxes but an extra bonus can be given to pay the taxes, this is called a "double bonus" scenario.

This is most often used with cash accumulation policies so owners can maximize their net pay and reduce taxes in retirement. But you could use it to fund term as well.

Any good tax attorney can help guide your clients through the 162, you might have to help fill in some blanks when it comes to the LI...

good luck
 
Yes I agree and it is what I also think is true.

I am aware of the bonus arrangements but someone still pays the tax. The advantage would be if the corporation is in a higher tax bracket.

I have heard of some accountants treating buy/sell premiums as a business expense. This is a definite grey area in my opinion.

Its best to tell your clients to let their accountant or tax attorney make this call since they are the ones who will have to explain it to the IRS, not you. I would tell your clients that exact statement.

IRC 529 dos not contain any wording (that im aware of) to allow deductions of life insurance premiums.

The IRC code that dictates deductible business expenses (cant think of the number right now) contains wording that some accountants and tax attorneys argue: allows the deduction of life insurance premiums if used for "business purposes", not for personal needs.
So like I said, its a grey area.

but...

IRC 162 allows the deduction of life insurance premiums as a "fringe benefit" if paid as a cash bonus to the employee and then the employee officially pays the premiums.
The employee is liable for taxes but an extra bonus can be given to pay the taxes, this is called a "double bonus" scenario.

This is most often used with cash accumulation policies so owners can maximize their net pay and reduce taxes in retirement. But you could use it to fund term as well.

Any good tax attorney can help guide your clients through the 162, you might have to help fill in some blanks when it comes to the LI...

good luck
 
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