Author Topic: Can a self-employed person use the business to buy life insurance or disability?  (Read 2284 times)

Gin1984

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My disability insurance and life go through my employer now and they pay a portion (and therefore I don't pay FICA on that), and I wondered if that would be a way to decrease my FICA spending on my self-employed income by paying some of my life insurance/disability as my self employed "employer"?

Cathy

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Self-employment income is not subject to FICA tax (codified at 26 USC 3101-3128). It is, however, subject to a "tax on self-employment income" (codified at 26 USC 1401-1403), which has very similar rates as FICA, although actually not precisely the same in certain cases.

As for your question, I think you would be best served if I simply referred you to a publication that the IRS has written on this topic, Chapter 6 of IRS Publication 535, which describes the circumstances under which insurance is a deducible business expense. Please note that IRS publications are not the law, are not guaranteed to be accurate, are "nonbinding on the [IRS]" and "should not be cited to sustain a position" (IRM 4.10.7.2.8), and, like all secondary sources, "do not have the force of statutory enactment nor do they supersede judicial decisions" (Schott, Inc. v. Kalar, 20 CalApp4th 943 n 4 (CA Ct App 1993)). Nonetheless, those qualifications are all true of my posts as well, so when there is already a publication that answers your exact question, it makes sense to link to it.
« Last Edit: October 04, 2015, 07:24:27 PM by Cathy »

DaveR

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What Cathy said.
But yeah, it should be a valid expense that will reduce self-employment income and thus the related tax.

Cathy

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Please note that I did not express a view on whether the contemplated expenses would be deductible.

puglogic

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As an aside, am I the only one who finds it amusing that IRS publications are not binding on the IRS? 

Cathy

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The reason the IRS writes those publications is to explain the tax law in relatively easy-to-understand language so that nonlawyers can understand how the tax system works. However, in order to make the law relatively easy to understand, the IRS frequently simplifies things in its publications or omits special cases or does not talk about certain obscure matters at all. If the IRS were required to be 100% accurate in its publications, the publications would be far more complicated and probably a lot less useful to nonlawyers, or, more likely, the IRS would not publish them in the first place That is one reason why the publications aren't binding on the IRS: it gives the IRS the flexibility to make the subject easy to understand, without forcing them to include all of the technical details.
« Last Edit: October 04, 2015, 08:14:14 PM by Cathy »