What is true about the taxation of Business Overhead policies?

Business Overhead policies are a specific type of insurance designed to cover the operating expenses of a business when the owner becomes disabled. When it comes to the taxation of these policies, it's important to understand the treatment of both premiums and benefits.

Premiums for Business Overhead policies are typically considered a necessary business expense. Because of this, businesses can deduct these premiums on their taxes, which ultimately lowers their taxable income. As for the benefits received from these policies, they are treated differently. The benefits paid out to the business when a claim is made are considered taxable income. This means that the business must report these benefits on their tax returns, and they will be subject to income tax.

This understanding of the tax implications highlights the correct choice: premiums are deductible for the business, while the benefits received are taxed as income. It’s beneficial for business owners to navigate these aspects of taxation correctly, as they can optimize their financial and tax planning strategies in relation to their insurance coverage.