Which of the following is true concerning the corporate taxation of insurance premiums and the treatment of uninsured losses?
A) Both premiums and expected losses are deductible at the beginning of the year.
B) Uninsured losses are deductible only when they occur and premiums are deductible in the year paid.
C) Since payments for insured losses are 100% tax deductible, commercial insurance is economically inefficient.
D) Losses paid under the deductible amount are not tax deductible because the insured assumed the losses.

Question

Quizplus · Accepted Answer

Uninsured losses are deductible only when they occur and premiums are deductible in the year paid. This reflects the general tax principle that expenses are deductible in the year they are incurred, and not before. Losses paid under the deductible amount are not tax deductible because the insured assumed the losses. Commercial insurance is still economically efficient even though payments for insured losses may be 100% tax deductible because it allows companies to transfer risk and reduce uncertainty.

Which of the Following Is True Concerning the Corporate Taxation