Can I Write This Off?

Can I write off tax liability insurance?

TL;DR

Tax liability insurance is generally deductible as a business expense if it is ordinary and necessary for your trade or business.

Detailed Answer

Tax liability insurance can be deducted as a business expense if it is considered both ordinary (common and accepted in your trade or business) and necessary (helpful and appropriate for your business). For example, a business that faces significant tax risks might find such insurance necessary to protect against potential tax liabilities. However, for individuals not engaged in a trade or business, this expense is typically not deductible.

Where to Put It on the Tax Form

Schedule C (Form 1040), Line 15 for sole proprietors; or on the applicable line for 'Other Deductions' on corporate tax forms.

Real World Example

A small accounting firm purchases tax liability insurance to cover potential errors in tax filings for clients. The firm deducts the insurance premiums as a business expense on their Schedule C.

Audit Risk & Documentation Tips

Keep detailed records of the insurance policy, including the terms and conditions, invoices, and proof of payment. Ensure the insurance is directly related to your business activities to substantiate its necessity and ordinary nature in case of an audit.

IRS Reference

IRS Publication 535, Business Expenses

Relevant Industries

Small BusinessCorporationsTax ConsultantsAccounting Firms

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Disclaimer: This is for informational purposes only and should not be construed as tax or legal advice. Always consult your tax advisor.

Page created on July 7, 2025

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