Can you deduct premiums in advance?

[roseline371274]

Dividends from business insurance: If you receive dividends from business insurance and you deducted the premiums in prior years, at least part of the dividends generally are income.
How can a business deduct premiums?
This depends on your accounting method. Businesses can usually deduct insurance new zealand phone number search premiums in the tax year to which they apply. The IRS discusses both the cash method and the accrual method.

Cash method: According to the IRS, 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.
Accrual method: If you use an accrual method of accounting, you can't deduct insurance premiums before the tax year in which you incur a liability for them. You also can't deduct insurance premiums before the tax year in which you actually pay them (unless the exception for recurring items applies).
No. According to the IRS, "You can't deduct expenses in advance, even if you pay them in advance. 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. Expenses such as insurance are generally allocable to a period of time. You can deduct insurance expenses for the year to which they are allocable."

The IRS gives the following example: "In 2020, you signed a 3-year insurance contract. Even though you paid the premiums for 2020, 2021, and 2022 when you signed the contract, you can only deduct the premium for 2020 on your 2020 tax return. You can deduct in 2021 and 2022 the premium allocable to those years."

As always, check with your accountant if you have specific questions. Also note that these IRS publications apply to 2021 and this is just an overview. For more details, consult a tax professional or visit IRS.gov.