What insurance premiums can I deduct as a contractor?
Almost every insurance premium you pay as a business expense is deductible. If the policy exists to protect your contracting business, it counts. Here’s what that looks like in practice.
General liability insurance is fully deductible. This is the policy most contractors carry first, and it’s a straightforward business expense on your return. Same goes for commercial property insurance if you have an office, shop, or storage facility.
Workers’ compensation insurance is deductible and required in California for most employers. The premiums you pay are a normal cost of doing business. If your rates go up because of your industry classification or claims history, that higher amount is still fully deductible.
Commercial auto and vehicle insurance premiums are deductible, but only the business portion. If you use a truck 80% for work and 20% personally, you deduct 80% of the premium. If the vehicle is used exclusively for business, the full premium is deductible. This is separate from the standard mileage rate calculation, so if you use actual expenses for your vehicle deduction, auto insurance is part of that.
Inland marine insurance, which covers your tools and equipment on job sites and in transit, is fully deductible. Contractors in the trades often carry this and forget to track the premium as a separate deduction. Builder’s risk policies that cover projects under construction are deductible the same way.
Surety bond premiums are one that gets missed frequently. If you’re paying for a contractor’s license bond or performance bonds on projects, those premiums are deductible business expenses. They can add up quickly on larger jobs.
Professional liability or errors and omissions coverage is deductible if you carry it. Umbrella policies that extend your business liability limits are deductible too. Any policy that sits on top of your business coverage qualifies.
Health insurance has different rules if you’re self-employed. You can deduct premiums for yourself, your spouse, and your dependents, but it’s not a regular business expense on Schedule C. It goes on Schedule 1 of your personal return as an adjustment to income. The deduction can’t exceed your net self-employment income, and you can’t take it for any month you were eligible for an employer-sponsored plan through a spouse’s job. If you have employees and provide group health insurance, those employer contributions are a normal business deduction.
Disability insurance premiums you pay personally are not deductible, but the benefit is that any payments you receive if you file a claim would be tax-free. Business overhead expense insurance, which covers your fixed costs if you’re unable to work, is deductible as a business expense.
The thing most contractors get wrong is not tracking these premiums properly throughout the year. You might pay some annually, some quarterly, and some monthly. When those payments hit your bank account, they need to be categorized correctly so nothing falls through the cracks at tax time. Good contractor bookkeeping services will catch each of these and put them in the right bucket.
When it’s time to file your business tax return, having every insurance premium properly recorded means your accountant isn’t guessing or digging through bank statements. You get every dollar of deduction you’re entitled to, and you have clean documentation if the IRS ever asks questions.
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