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The deductibility of disability premiums


To my readers:
I appreciate all the questions you send each week. But because of the volume of mail, you may not have the answer you need as the April 15 filing deadline nears. If you haven't heard back from me and you really need an answer before you can file, check out the full Bankrate Taxes site, especially my earlier columns. What you need may be there. If not, consider seeking an extension of time to file your federal and state returns so you'll have time to get the tax answer you need. But remember: If you do get an extension, be sure to pay what you might owe to avoid interest and penalties.

Dear Tax Talk,
Are disability insurance premium payments deductible? I am a partner physician in a big group. -- Kanagal

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Dear Kanagal,
If you were unable to work in your profession, disability insurance would provide you with replacement income for the period of your disability. Professional and business owners should never go without some form of coverage in the event that they can't work at their trade for whatever reason.

It's also important that the policy provide coverage in the event that you can't work at your chosen profession as opposed to not being able to do any type of work. You wouldn't want to have to go from slicing patients in the operating room to flipping burgers at McDonald's.

Disability insurance is considered a fringe benefit when provided by your company. Disability insurance paid to cover the employees of the partnership is deductible by the partnership, but not by the individual partners.

Partners' fringe benefits such as health, disability and group life insurance are not deductible by the partnership and instead flow through to the partners separately on their Schedule K-1s.

While health insurance is deductible on your individual return as an adjustment to gross income or as a medical expense, disability insurance is not. The flip side to this is that if you ever file a disability claim, the income from the policy would not be taxable.

-- Posted: April 8, 2004




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