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Online 1040x

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Online 1040x

Online 1040x Publication 4681 - Introductory Material Table of Contents Reminder IntroductionOrdering forms and publications. Online 1040x Tax questions. Online 1040x Useful Items - You may want to see: Common Situations Covered In This Publication Reminder Future Developments. Online 1040x  Information about any future developments affecting Publication 4681 (such as legislation enacted after we release it) will be posted at www. Online 1040x irs. Online 1040x gov/pub4681. Online 1040x Photographs of missing children. Online 1040x   The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Online 1040x Photographs of missing children selected by the Center may appear in this publication on pages that otherwise would be blank. Online 1040x You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Online 1040x Introduction This publication explains the federal tax treatment of canceled debts, foreclosures, repossessions, and abandonments. Online 1040x Generally, if you owe a debt to someone else and they cancel or forgive that debt for less than its full amount, you are treated for income tax purposes as having income and may have to pay tax on this income. Online 1040x Note. Online 1040x This publication generally refers to debt that is canceled, forgiven, or discharged for less than the full amount of the debt as “canceled debt. Online 1040x ” Sometimes a debt, or part of a debt, that you do not have to pay is not considered canceled debt. Online 1040x These exceptions are discussed later under Exceptions . Online 1040x Sometimes a canceled debt may be excluded from your income. Online 1040x But if you do exclude canceled debt from income, you may be required to reduce your “tax attributes. Online 1040x ” These exclusions and the reduction of tax attributes associated with them are discussed later under Exclusions . Online 1040x Foreclosure and repossession are remedies that your lender may exercise if you fail to make payments on your loan and you have previously granted that lender a mortgage or other security interest in some of your property. Online 1040x These remedies allow the lender to seize or sell the property securing the loan. Online 1040x When your property is foreclosed upon or repossessed and sold, you are treated as having sold the property and you may recognize taxable gain. Online 1040x Whether you also recognize income from canceled debt depends in part on whether you are personally liable for the debt and in part on whether the outstanding loan balance is more than the fair market value (FMV) of the property. Online 1040x Figuring your gain or loss and income from canceled debt arising from a foreclosure or repossession is discussed later under Foreclosures and Repossessions . Online 1040x Generally, you abandon property when you voluntarily and permanently give up possession and use of property you own with the intention of ending your ownership but without passing it on to anyone else. Online 1040x Figuring your gain or loss and income from canceled debt arising from an abandonment is discussed later under Abandonments . Online 1040x This publication also includes detailed examples with filled-in forms. Online 1040x Comments and suggestions. Online 1040x    We welcome your comments about this publication and your suggestions for future editions. Online 1040x   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Online 1040x NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Online 1040x Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Online 1040x   You can send your comments from www. Online 1040x irs. Online 1040x gov/formspubs. Online 1040x Click on “More Information” and then on “Comment on Tax Forms and Publications”. Online 1040x   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Online 1040x Ordering forms and publications. Online 1040x    Visit www. Online 1040x irs. Online 1040x gov/formspubs to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Online 1040x Internal Revenue Service 1201 N. Online 1040x Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Online 1040x    If you have a tax question, check the information available on IRS. Online 1040x gov or call 1-800-829-1040. Online 1040x We cannot answer tax questions sent to either of the above addresses. Online 1040x Useful Items - You may want to see: Publication 225 Farmer's Tax Guide 334 Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ) 523 Selling Your Home 525 Taxable and Nontaxable Income 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 542 Corporations 544 Sales and Other Dispositions of Assets 551 Basis of Assets 908 Bankruptcy Tax Guide Form (and Instructions) 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) 1099-C Cancellation of Debt 1099-DIV Dividends and Distributions 3800 General Business Credit Common Situations Covered In This Publication The sections of this publication that apply to you depend on the type of debt canceled, the tax attributes you have, and whether or not you continue to own the property that was subject to the debt. Online 1040x Some examples of common circumstances are provided in the following paragraphs to help guide you through this publication. Online 1040x These examples do not cover every situation but are intended to provide general guidance for the most common situations. Online 1040x Nonbusiness credit card debt cancellation. Online 1040x    If you had a nonbusiness credit card debt canceled, you may be able to exclude the canceled debt from income if the cancellation occurred in a title 11 bankruptcy case or you were insolvent immediately before the cancellation. Online 1040x You should read Bankruptcy or Insolvency under Exclusions in chapter 1 to see if you can exclude the canceled debt from income under one of those provisions. Online 1040x If you can exclude part or all of the canceled debt from income, you should also read Bankruptcy and Insolvency under Reduction of Tax Attributes in chapter 1. Online 1040x Personal vehicle repossession. Online 1040x    If you had a personal vehicle repossessed and disposed of by the lender during the year, you will need to determine your gain or nondeductible loss on the disposition. Online 1040x This is explained in chapter 2 . Online 1040x If the lender also canceled all or part of the remaining amount of the loan, you may be able to exclude the canceled debt from income if the cancellation occurred in a title 11 bankruptcy case or you were insolvent immediately before the cancellation. Online 1040x You should read Bankruptcy or Insolvency under Exclusions in chapter 1 to see if you can exclude the canceled debt from income under one of those provisions. Online 1040x If you can exclude part or all of the canceled debt from income, you should also read Bankruptcy and Insolvency under Reduction of Tax Attributes in chapter 1. Online 1040x Main home foreclosure or abandonment. Online 1040x    If a lender foreclosed on your main home during the year, you will need to determine your gain or loss on the foreclosure. Online 1040x Foreclosures are explained in chapter 2 and abandonments are explained in chapter 3. Online 1040x If the lender also canceled all or part of the remaining amount on the mortgage loan and you were personally liable for the debt, you should also read Qualified Principal Residence Indebtedness under Exclusions in chapter 1 to see if you can exclude part or all of the canceled debt from income. Online 1040x Detailed Example 2 and Example 3 in chapter 4 use filled-in forms to help explain these provisions. Online 1040x Main home loan modification (workout agreement). Online 1040x    If a lender agrees to a mortgage loan modification (a “workout”) that includes a reduction in the principal balance of the loan, you should read Qualified Principal Residence Indebtedness under Exclusions in chapter 1 to see if you can exclude part or all of the canceled debt from income. Online 1040x If you can exclude part or all of the canceled debt from income, you should also read Qualified Principal Residence Indebtedness under Reduction of Tax Attributes in chapter 1. Online 1040x Detailed Example 1 in chapter 4 uses filled-in forms to help explain the tax implications of a mortgage workout scenario. Online 1040x Prev  Up  Next   Home   More Online Publications
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The Online 1040x

Online 1040x 6. Online 1040x   Insurance Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Deductible PremiumsSelf-Employed Health Insurance Deduction Nondeductible Premiums Capitalized Premiums When To Deduct Premiums What's New Retiree drug subsidy. Online 1040x  Beginning in 2013, sponsors of certain qualified retiree prescription drug plans must account for the subsidy received by reducing the amount of qualified retiree prescription drug plans expense by the subsidy received (taking into account the taxpayer's accounting method). Online 1040x For more information, see the retiree drug subsidy frequently asked questions on IRS. Online 1040x gov. Online 1040x Introduction You generally can deduct the ordinary and necessary cost of insurance as a business expense if it is for your trade, business, or profession. Online 1040x However, you may have to capitalize certain insurance costs under the uniform capitalization rules. Online 1040x For more information, see Capitalized Premiums , later. Online 1040x Topics - This chapter discusses: Deductible premiums Nondeductible premiums Capitalized premiums When to deduct premiums Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 538 Accounting Periods and Methods 547 Casualties, Disasters, and Thefts Form (and Instructions) 1040 U. Online 1040x S. Online 1040x Individual Income Tax Return See chapter 12 for information about getting publications and forms. Online 1040x Deductible Premiums You generally can deduct premiums you pay for the following kinds of insurance related to your trade or business. Online 1040x Insurance that covers fire, storm, theft, accident, or similar losses. Online 1040x Credit insurance that covers losses from business bad debts. Online 1040x Group hospitalization and medical insurance for employees, including long-term care insurance. Online 1040x If a partnership pays accident and health insurance premiums for its partners, it generally can deduct them as guaranteed payments to partners. Online 1040x If an S corporation pays accident and health insurance premiums for its more-than-2% shareholder-employees, it generally can deduct them, but must also include them in the shareholder's wages subject to federal income tax withholding. Online 1040x See Publication 15-B. Online 1040x Liability insurance. Online 1040x Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. Online 1040x Workers' compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault. Online 1040x If a partnership pays workers' compensation premiums for its partners, it generally can deduct them as guaranteed payments to partners. Online 1040x If an S corporation pays workers' compensation premiums for its more-than-2% shareholder-employees, it generally can deduct them, but must also include them in the shareholder's wages. Online 1040x Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. Online 1040x Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. Online 1040x Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. Online 1040x If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. Online 1040x If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. Online 1040x Life insurance covering your officers and employees if you are not directly or indirectly a beneficiary under the contract. Online 1040x Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. Online 1040x Self-Employed Health Insurance Deduction You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependents. Online 1040x The insurance can also cover your child who was under age 27 at the end of 2013, even if the child was not your dependent. Online 1040x A child includes your son, daughter, stepchild, adopted child, or foster child. Online 1040x A foster child is any child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. Online 1040x One of the following statements must be true. Online 1040x You were self-employed and had a net profit for the year reported on Schedule C (Form 1040), Profit or Loss From Business; Schedule C-EZ (Form 1040), Net Profit From Business; or Schedule F (Form 1040), Profit or Loss From Farming. Online 1040x You were a partner with net earnings from self-employment for the year reported on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Online 1040x , box 14, code A. Online 1040x You used one of the optional methods to figure your net earnings from self-employment on Schedule SE. Online 1040x You received wages in 2013 from an S corporation in which you were a more-than-2% shareholder. Online 1040x Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2, Wage and Tax Statement. Online 1040x The insurance plan must be established, or considered to be established as discussed in the following bullets, under your business. Online 1040x For self-employed individuals filing a Schedule C, C-EZ, or F, a policy can be either in the name of the business or in the name of the individual. Online 1040x For partners, a policy can be either in the name of the partnership or in the name of the partner. Online 1040x You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Online 1040x However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Online 1040x Otherwise, the insurance plan will not be considered to be established under your business. Online 1040x For more-than-2% shareholders, a policy can be either in the name of the S corporation or in the name of the shareholder. Online 1040x You can either pay the premiums yourself or your S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. Online 1040x However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income. Online 1040x Otherwise, the insurance plan will not be considered to be established under your business. Online 1040x Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction. Online 1040x If you previously filed returns without using Medicare premiums to figure the deduction, you can file timely amended returns to refigure the deduction. Online 1040x For more information, see Form 1040X, Amended U. Online 1040x S. Online 1040x Individual Income Tax Return. Online 1040x Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer cannot be used to figure the deduction. Online 1040x Take the deduction on Form 1040, line 29. Online 1040x Qualified long-term care insurance. Online 1040x   You can include premiums paid on a qualified long-term care insurance contract when figuring your deduction. Online 1040x But, for each person covered, you can include only the smaller of the following amounts. Online 1040x The amount paid for that person. Online 1040x The amount shown below. Online 1040x Use the person's age at the end of the tax year. Online 1040x Age 40 or younger–$360 Age 41 to 50–$680 Age 51 to 60–$1,360 Age 61 to 70–$3,640 Age 71 or older–$4,550 Qualified long-term care insurance contract. Online 1040x   A qualified long-term care insurance contract is an insurance contract that only provides coverage of qualified long-term care services. Online 1040x The contract must meet all the following requirements. Online 1040x It must be guaranteed renewable. Online 1040x It must provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract may be used only to reduce future premiums or increase future benefits. Online 1040x It must not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed. Online 1040x It generally must not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses. Online 1040x Qualified long-term care services. Online 1040x   Qualified long-term care services are: Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and Maintenance or personal care services. Online 1040x The services must be required by a chronically ill individual and prescribed by a licensed health care practitioner. Online 1040x Worksheet 6-A. Online 1040x Self-Employed Health Insurance Deduction Worksheet Note. Online 1040x Use a separate worksheet for each trade or business under which an insurance plan is established. Online 1040x 1. Online 1040x Enter the total amount paid in 2013 for health insurance coverage established under your business for 2013 for you, your spouse, and your dependents. Online 1040x Your insurance can also cover your child who was under age 27 at the end of 2013, even if the child was not your dependent. Online 1040x But do not include the following. Online 1040x   Amounts for any month you were eligible to participate in a health plan subsidized by your or your spouse's employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2013. Online 1040x Any amounts paid from retirement plan distributions that were nontaxable because you are a retired public safety officer. Online 1040x Any amounts you included on Form 8885, line 4. Online 1040x Any qualified health insurance premiums you paid to “U. Online 1040x S. Online 1040x Treasury-HCTC. Online 1040x ” Any health coverage tax credit advance payments shown in box 1 of Form 1099-H. Online 1040x Any payments for qualified long-term care insurance (see line 2) 1. Online 1040x   2. Online 1040x For coverage under a qualified long-term care insurance contract, enter for each person covered the smaller of the following amounts. Online 1040x       a) Total payments made for that person during the year. Online 1040x       b) The amount shown below. Online 1040x Use the person's age at the end of the tax year. Online 1040x         $360— if that person is age 40 or younger          $680— if age 41 to 50         $1,360— if age 51 to 60         $3,640— if age 61 to 70         $4,550— if age 71 or older         Do not include payments for any month you were eligible to participate in a long-term care insurance plan subsidized by your or your spouse’s employer or the employer of either your dependent or your child who was under the age of 27 at the end of 2013. Online 1040x If more than one person is covered, figure separately the amount to enter for each person. Online 1040x Then enter the total of those amounts 2. Online 1040x   3. Online 1040x Add lines 1 and 2 3. Online 1040x   4. Online 1040x Enter your net profit* and any other earned income** from the trade or business under which the insurance plan is established. Online 1040x Do not include Conservation Reserve Program payments exempt from self-employment tax. Online 1040x If the business is an S corporation, skip to line 11 4. Online 1040x   5. Online 1040x Enter the total of all net profits* from: Schedule C (Form 1040), line 31; Schedule C-EZ (Form 1040), line 3; Schedule F (Form 1040), line 34; or Schedule K-1 (Form 1065), box 14, code A; plus any other income allocable to the profitable businesses. Online 1040x Do not include Conservation Reserve Program payments exempt from self-employment tax. Online 1040x See the Instructions for Schedule SE (Form 1040). Online 1040x Do not include any net losses shown on these schedules. Online 1040x 5. Online 1040x   6. Online 1040x Divide line 4 by line 5 6. Online 1040x   7. Online 1040x Multiply Form 1040, line 27, by the percentage on line 6 7. Online 1040x   8. Online 1040x Subtract line 7 from line 4 8. Online 1040x   9. Online 1040x Enter the amount, if any, from Form 1040, line 28, attributable to the same trade or business in which the insurance plan is established 9. Online 1040x   10. Online 1040x Subtract line 9 from line 8 10. Online 1040x   11. Online 1040x Enter your Medicare wages (Form W-2, box 5) from an S corporation in which you are a more-than-2% shareholder and in which the insurance plan is established 11. Online 1040x   12. Online 1040x Enter any amount from Form 2555, line 45, attributable to the amount entered on line 4 or 11 above, or any amount from Form 2555-EZ, line 18, attributable to the amount entered on line 11 above 12. Online 1040x   13. Online 1040x Subtract line 12 from line 10 or 11, whichever applies 13. Online 1040x   14. Online 1040x Enter the smaller of line 3 or line 13 here and on Form 1040, line 29. Online 1040x Do not include this amount when figuring any medical expense deduction on Schedule A (Form 1040). Online 1040x 14. Online 1040x   * If you used either optional method to figure your net earnings from self-employment from any business, do not enter your net profit from the business. Online 1040x Instead, enter the amount attributable to that business from Schedule SE (Form 1040), Section B, line 4b. Online 1040x * *Earned income includes net earnings and gains from the sale, transfer, or licensing of property you created. Online 1040x However, it does not include capital gain income. Online 1040x Chronically ill individual. Online 1040x   A chronically ill individual is a person who has been certified as one of the following. Online 1040x An individual who has been unable, due to loss of functional capacity for at least 90 days, to perform at least two activities of daily living without substantial assistance from another individual. Online 1040x Activities of daily living are eating, toileting, transferring (general mobility), bathing, dressing, and continence. Online 1040x An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. Online 1040x The certification must have been made by a licensed health care practitioner within the previous 12 months. Online 1040x Benefits received. Online 1040x   For information on excluding benefits you receive from a long-term care contract from gross income, see Publication 525. Online 1040x Other coverage. Online 1040x   You cannot take the deduction for any month you were eligible to participate in any employer (including your spouse's) subsidized health plan at any time during that month, even if you did not actually participate. Online 1040x In addition, if you were eligible for any month or part of a month to participate in any subsidized health plan maintained by the employer of either your dependent or your child who was under age 27 at the end of 2013, do not use amounts paid for coverage for that month to figure the deduction. Online 1040x   These rules are applied separately to plans that provide long-term care insurance and plans that do not provide long-term care insurance. Online 1040x However, any medical insurance payments not deductible on Form 1040, line 29, can be included as medical expenses on Schedule A (Form 1040), Itemized Deductions, if you itemize deductions. Online 1040x Effect on itemized deductions. Online 1040x   Subtract the health insurance deduction from your medical insurance when figuring medical expenses on Schedule A (Form 1040) if you itemize deductions. Online 1040x Effect on self-employment tax. Online 1040x   For tax years beginning before or after 2010, you cannot subtract the self-employed health insurance deduction when figuring net earnings for your self-employment tax from the business under which the insurance plan is established, or considered to be established as discussed earlier. Online 1040x For more information, see Schedule SE (Form 1040). Online 1040x How to figure the deduction. Online 1040x   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. Online 1040x However, if any of the following apply, you must use Worksheet 6-A in this chapter. Online 1040x You had more than one source of income subject to self-employment tax. Online 1040x You file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. Online 1040x You are using amounts paid for qualified long-term care insurance to figure the deduction. Online 1040x If you are claiming the health coverage tax credit, complete Form 8885, Health Coverage Tax Credit, before you figure this deduction. Online 1040x Health coverage tax credit. Online 1040x   You may be able to take this credit only if you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment trade adjustment assistance (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient. Online 1040x Use Form 8885 to figure the amount, if any, of this credit. Online 1040x   When figuring the amount to enter on line 1 of Worksheet 6-A, do not include the following. Online 1040x Any amounts you included on Form 8885, line 4. Online 1040x Any qualified health insurance premiums you paid to “U. Online 1040x S. Online 1040x Treasury-HCTC. Online 1040x ” Any health coverage tax credit advance payments shown in box 1 of Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. Online 1040x More than one health plan and business. Online 1040x   If you have more than one health plan during the year and each plan is established under a different business, you must use separate worksheets (Worksheet 6-A) to figure each plan's net earnings limit. Online 1040x Include the premium you paid under each plan on line 1 or line 2 of that separate worksheet and your net profit (or wages) from that business on line 4 (or line 11). Online 1040x For a plan that provides long-term care insurance, the total of the amounts entered for each person on line 2 of all worksheets cannot be more than the appropriate limit shown on line 2 for that person. Online 1040x Nondeductible Premiums You cannot deduct premiums on the following kinds of insurance. Online 1040x Self-insurance reserve funds. Online 1040x You cannot deduct amounts credited to a reserve set up for self-insurance. Online 1040x This applies even if you cannot get business insurance coverage for certain business risks. Online 1040x However, your actual losses may be deductible. Online 1040x See Publication 547. Online 1040x Loss of earnings. Online 1040x You cannot deduct premiums for a policy that pays for lost earnings due to sickness or disability. Online 1040x However, see the discussion on overhead insurance, item (8), under Deductible Premiums , earlier. Online 1040x Certain life insurance and annuities. Online 1040x For contracts issued before June 9, 1997, you cannot deduct the premiums on a life insurance policy covering you, an employee, or any person with a financial interest in your business if you are directly or indirectly a beneficiary of the policy. Online 1040x 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. Online 1040x 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. Online 1040x For contracts issued after June 8, 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. Online 1040x The disallowance applies without regard to whom the policy covers. Online 1040x Partners. Online 1040x If, as a partner in a partnership, you take out an insurance policy on your own life and name your partners as beneficiaries to induce them to retain their investments in the partnership, you are considered a beneficiary. Online 1040x You cannot deduct the insurance premiums. Online 1040x Insurance to secure a loan. Online 1040x 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. Online 1040x Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. Online 1040x In the event of death, the proceeds of the policy are generally not taxed as income even if they are used to liquidate the debt. Online 1040x Capitalized Premiums Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Online 1040x Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. Online 1040x You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Online 1040x Indirect costs include premiums for insurance on your plant or facility, machinery, equipment, materials, property produced, or property acquired for resale. Online 1040x Uniform capitalization rules. Online 1040x   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. Online 1040x Produce real property or tangible personal property. Online 1040x For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. Online 1040x Acquire property for resale. Online 1040x However, these rules do not apply to the following property. Online 1040x Personal property you acquire for resale if your average annual gross receipts are $10 million or less for the 3 prior tax years. Online 1040x Property you produce if you meet either of the following conditions. Online 1040x Your indirect costs of producing the property are $200,000 or less. Online 1040x You use the cash method of accounting and do not account for inventories. Online 1040x More information. Online 1040x   For more information on these rules, see Uniform Capitalization Rules in Publication 538 and the regulations under Internal Revenue Code section 263A. Online 1040x When To Deduct Premiums You can usually deduct insurance premiums in the tax year to which they apply. Online 1040x Cash method. Online 1040x   If you use the cash method of accounting, you generally deduct insurance premiums in the tax year you actually paid them, even if you incurred them in an earlier year. Online 1040x However, see Prepayment , later. Online 1040x Accrual method. Online 1040x   If you use an accrual method of accounting, you cannot deduct insurance premiums before the tax year in which you incur a liability for them. Online 1040x In addition, you cannot deduct insurance premiums before the tax year in which you actually pay them (unless the exception for recurring items applies). Online 1040x For more information about the accrual method of accounting, see chapter 1. Online 1040x For information about the exception for recurring items, see Publication 538. Online 1040x Prepayment. Online 1040x   You cannot deduct expenses in advance, even if you pay them in advance. Online 1040x This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. Online 1040x   Expenses such as insurance are generally allocable to a period of time. Online 1040x You can deduct insurance expenses for the year to which they are allocable. Online 1040x Example. Online 1040x In 2013, you signed a 3-year insurance contract. Online 1040x Even though you paid the premiums for 2013, 2014, and 2015 when you signed the contract, you can only deduct the premium for 2013 on your 2013 tax return. Online 1040x You can deduct in 2014 and 2015 the premium allocable to those years. Online 1040x Dividends received. Online 1040x   If you receive dividends from business insurance and you deducted the premiums in prior years, at least part of the dividends generally are income. Online 1040x For more information, see Recovery of amount deducted (tax benefit rule) in chapter 1 under How Much Can I Deduct. Online 1040x Prev  Up  Next   Home   More Online Publications