Donna Genie explains why officer's life insurance premiums are generally not advisable to deduct for tax purposes because deducting premiums can make the death benefit taxable to beneficiaries. She gives a concrete example: a $2,000 premium saves roughly $500 in tax at a 25% rate, but could render a $1,000,000 benefit taxable to the beneficiary, making the small deduction not worth the future tax cost.
Questions this video answers
$2,000
25%
$500
$1,000,000
Chapters
Officer's life insurance is often one of those things people hear about and they say, well, I don't really want to spend on that because it's not deductible. Let's talk about why it's not deductible or when it is deductible. The reason that we hear about officers life insurance not being deductible is based on the benefits. So in the world of taxes, anytime you take a tax deduction for something somebody else has income, the reason that you don't want to take the deduction, you can, but you don't want to. Because if someone gets the benefits from that officer's life insurance policy paying out upon death, then if you took a deduction, they have to pay taxes on the proceeds. So it's really not worth it. Because let's take a little example. I was working on a tax return today and a client paid, let's make it $2,000 for officer's life insurance last year. With the taxes, they're probably going to save about 25% of that or $500. But let's say that next year he were to pass away and his wife were to receive the $1 million benefit. If he took that deduction to get that measly $500, that means her million dollar payout is taxable.
