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PLEASE NOTE: Our domain name has changed from captivesusa.com to arsenalrmi.com

Taxation Issues for an Insurance Company

  • Without a captive, self-insurance reserves are not generally tax deductible.
  • For insurance premiums to be tax deductible, the captive must be recognized as an insurance company for federal income tax purposes.
  • Risk transfer.
  • Risk distribution.
  • Third-party risk (usually).
  • Adequately capitalized.
  • Captive conducts itself like an insurance company.
  • Business purpose for Captive.
  • Premiums must be reasonable for risk assumed.

Tax Advantages of a Captive Insurance Company

Although tax benefits should never be the primary purpose of forming a captive, the following benefits can be available with a properly structured Captive Insurance Company:

  • A properly structured Captive will allow for deductions of premiums.
  • Generally, the Captive can deduct estimated future claims payments; unlike other taxpayers that may deduct claims only when paid.
  • Small insurance company provision allows up to $2.2 million in annual premium exemption (effective 1/1/17) and adjusted for inflation thereafter.