Suffering a business loss is often financially devastating. Even if you have casualty insurance that provides coverage, paying the deductible can still stress a small business's budget. While it is often difficult to find a positive in a time of loss, a casualty insurance claim may provide a silver lining when it comes time to file your taxes. The deductible that your business must cover, which may range from a few hundred dollars to thousands of dollars, might qualify as a tax deduction.
Deductions and Deductibles
A discussion about deductions and deductibles can quickly become confusing, because the terms are so close to one another.
A deduction is an expense that lowers your tax bill. All tax deductions should be confirmed with your accountant before you claim them, but some common examples include the following:
- mileage driving to clients' offices
- money spent on office supplies
- business-related travel expenses
A deductible is the amount of money your company must pay before your insurer will cover a claim. For example, if your business files a valid $2,000 claim against its casualty insurance policy and has a $500 deductible, then you will be responsible for the first $500, and your insurer will pay out $1,500 ($2,000 claim – $500 deductible = $1,500).
Deductibles May Qualify as Deductions
In many cases, a deductible may qualify for a deduction if your company files an insurance claim. You can't simply claim a $500 deduction if you pay premiums on a casualty insurance policy that has a $500 deductible. But if your business suffers a loss, most unreimbursed expenses can be taken as a tax deduction. In the above example, your company lost $2,000, perhaps to pay for medical expenses arising from a work-related accident. This is money that your business must pay, and, therefore, anything that's not reimbursed is a potential tax deduction. If your insurance policy paid back $1,500, but your company still owed $500, you can probably take a $500 tax deduction.
How much this deduction would save your company depends on its tax rate. If your business is taxed at 25 percent, a $500 deduction would reduce your business's tax bill by $125.
As mentioned, every deduction your company claims against its earning should first be discussed with an accountant. If your business had a loss this past year that warranted a casualty insurance claim, though, you should discuss the circumstances and finances related to the incident with your CPA. They'll likely confirm that the amount you didn't get reimbursed for, your insurance deductible, qualifies as a tax deduction. Consider speaking with a representative from Donaghy Kempton Insurors for more information on this topic.