![]() Thus, Acme may decide to establish a segregated account to which it will periodically make cash contributions – basically, a reserve – and from which it may withdraw funds to cover the loss, as needed. As in the case of most insurance, the premiums are “lost” as the policy period expires – they are not recovered notwithstanding that the insured has not suffered a loss.īusinesses will sometimes “self-insure” with respect to a particular loss by setting aside funds to cover their exposure to such loss. These premiums are deductible in determining Acme’s taxable income they represent an ordinary and necessary expense of conducting Acme’s business. Assume that Acme Co is paying premiums for commercial insurance coverage to protect itself from economic losses that may arise out of various events.
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