Life Insurance

Life insurance paid for officers and key employees where the company is the beneficiary are not deductible. Those premiums go on Sch M-1 - book expense not deductible.

Like most tax questions, it depends....  The most common life insurance  programs are the $50K and under employee life (where the employee names the beneficiary) offered as a non-taxable fringe benefit. If the program allows over $50K in death benefit, the cost of the excess is considered a taxable fringe to employee. In general this excess coverage can be at a very attractive rate, so it is common for senior executives to have the taxable cost of this excess benefit added to their W-2 and shown in compensation.

Another very common use of insurance is key man or officers life. It is the IRS position that if this cost is historically deducted by the company, the proceeds are fully taxable to the beneficiary (whether paid to the company or to an individual.) Typically as the beneficiary would like the proceeds tax free (to for example hire a replacement executive or pay off a bank loan) the company elects to not deduct this small premium amount annually in order to have the full proceeds in the event of death. These amounts are Schedule M items.

Other life insurance related situations can be even more complicated from a tax point of view, including the treatment of split dollar insurance and the use of life insurance paid for by the company but held outside the company for cross purchase agreements (to for example avoid increasing the value of the company by the amount of proceeds at the death of the insured.) For these, you (or your client) should consult with the insurance professional that set up the arrangement as proper tax treatment is generally required to make these work as planned.