Is Umbrella Insurance Tax Deductible For Businesses?

To paraphrase good ol’ Benjamin Franklin: Nothing is certain but death and taxes. And boy was he right — which is a reminder to get your paperwork in order, since April 15th is barrelling towards us! Although a pain to file, taxes are important. They pay for roads, public schools, national parks, and a whole list of other things that we all benefit from but don’t necessarily think about on a day-to-day basis. 

All of that is totally, 100% important and vital, but if you want to be a little selfish, there are also some ways you can see the benefits of your taxes a little bit closer to home. In fact, when it comes to your business liability insurance, taxes are 100% relevant — and can even you save money. So let’s first discuss what umbrella insurance for business covers, and then dig into the tax implications for you.

What is Umbrella Insurance for Businesses?

Umbrella coverage is a form of excess liability coverage, and you can purchase policies to protect your personal or commercial needs. When it concerns the latter, you’ll purchase business umbrella coverage (also known as commercial umbrella insurance), which kicks in after any underlying liability policy limits have maxed out or the underlying policy doesn’t cover the incident at hand. 

Think about it this way: Sometimes the standard coverage options just aren’t enough for your company, which is why you might want a little something extra in the form of an umbrella policy. Umbrella insurance for businesses comes with coverage limits that can be worth millions of dollars depending on your commercial circumstances. 

Say there’s a major accident in your workplace resulting in tens of thousands of dollars of property damage. If that came to pass, you’d want a solid umbrella policy with a super high limit to ensure you have all the coverage you need to cover damages.

Basics of Business Insurance and Tax Deductions

The Internal Revenue Service (aka the IRS) allows you to write off “the ordinary and necessary” associated with insurance premiums, but only when these insurance policies are used for business, trade, or professional reasons. 

So here’s how you should think of “ordinary and necessary” as far as it applies to your business dedications:

• Ordinary: An expense that’s relatively common within your particular industry. A cosmetic dermatologist may take out commercial property insurance to cover their expensive equipment. A maritime contractor, on the other hand, might want flood insurance to protect against any potential losses. Both of these insurance policies are pretty standard for their respective businesses. And therefore, both are tax deductible. 
• Necessary: A necessary cost is an expense considered appropriate and/or helpful for your specific business. For instance, your hair salon might be in a place that is prone to termites — so while pest insurance isn’t a common requirement for most hair salons, it’s definitely needed for yours. In this case, the insurance should be tax-deductible. 

Certain industries and employment types are allowed more tax deductions than others. For instance, it’s pretty standard for the self-employed to deduct tons of expenses, including insurance. For larger businesses, or a standard employee, things are a little less laissez-faire. 

Is Umbrella Insurance Tax Deductible for Businesses? 

Generally speaking, the IRS will allow you to deduct commercial umbrella insurance if it’s purchased to protect business income. So first, you’ll need to confirm if your policy is a business umbrella policy AND whether it’s ordinary or necessary for your business. If you check yes to both, then you’re looking at a future tax deduction. 

Because umbrella insurance will cost you anywhere from $500 to upwards of $1,500 annually (and even more for larger businesses), a tax deduction can have a big impact on your bottom line. 

Remember that commercial and personal umbrella policies differ. We know you know that personal umbrella policies that cover your personal expenses cannot be deducted for business purposes. But we bet you didn’t know that there is an exception to this rule: if you own a rental property!

If you’re a landlord who owns multiple properties and you use some of this as personal property, then an insurance company will allow you to take out a personal umbrella policy. And in that case, the premiums associated with that policy can often be deducted — or at least partially deducted. 

Taxes are gnarly, so if you have any questions at all — even just one — we suggest reaching out to a professional tax accountant or CPA. Hiring a professional keeps your company from getting audited AND ensures that you can take advantage of all possible deductions. Basically, it’s the smart thing to do if you want to save money — and we’re here to support that in any way possible!

Maximize Your Business’ Financial Health with Marble

Have tax questions, then you should talk to a CPA. Confused about insurance? Then you need Marble. With Marble, you can shop for umbrella insurance and compare quotes, all while earning rewards. Boost your business and protect your future with Marble. Sign up today!