In general, the premium you pay for life insurance is not deductible. However if you are an employer in your business you can deduct the cost of company-paid life insurance policy. You, as the employer will have to decide if the cost should be taxable to your employees.

Group life insurance less than $50,000

Group term life insurance is sometimes less expensive for employers to purchase. If you are an employer and decide to provide group term life insurance of $50,000 or less, your employees will not have to include the premiums you pay as income on their w-2. Anything over $50,000 is taxable to employees.

You will be taxed on the entire cost of group term life insurance if it is purchased for key employees only. So if you and your brother are employees in your s corporation and you are the only benefactors of your group life insurance plan, your premiums will be taxable

Key person life insurance

Key person life insurance is often used to protect the loss that could happen to a business if a key employee dies. For example, the death of your business partner could bankrupt your business. As a result, having key person life insurance on people who can impact the direction of your business is highly recommended. The company is the benefactor of a key person life insurance policy and the tax premiums are not deductible.

Treatment of benefits

One of the great things of life insurance is that in general death benefits are not taxable (referring to income tax and not estate tax). However, if you provide over $50,000 of benefits to your employees and pay the premiums, the excess paid out will be taxable. With life insurance, you either pay now or pay later.

In summary, tax laws can be quite complicated especially when you own a business. It is advisable you always consult a professional before making decisions that will affect your tax situation.