Question 14

Premiums for personal life insurance are not deductible for income tax purposes.

Premiums paid for personal life insurance are considered personal expenses and, therefore, are not deductible on your income tax return.

A) tax deferred.

This option is incorrect because tax deferral refers to the postponement of tax payments until a later date, which does not apply to personal life insurance premiums. These premiums are not subject to tax deferral; they are simply non-deductible expenses.

B) not deductible.

This option is correct as personal life insurance premiums cannot be deducted from taxable income. The IRS explicitly states that these premiums are classified as personal expenses and do not qualify for tax deductions.

C) excluded from the adjusted gross income.

This option is incorrect because while the proceeds from a life insurance policy are generally excluded from taxable income, this does not apply to the premiums paid. The premiums themselves do not reduce the adjusted gross income.

D) deductible to the extent that they exceed 7.5% of the adjusted gross income.

This option is incorrect as it misrepresents the treatment of personal life insurance premiums. Unlike medical expenses, which may be deductible above a certain threshold, life insurance premiums are not deductible at all, regardless of income level.

Conclusion

The correct answer is that premiums for personal life insurance are not deductible for income tax purposes. This is a fundamental aspect of tax law regarding personal expenses, distinguishing them from deductible business or investment-related expenses. All other options fail as they either misstate the nature of the premiums or incorrectly suggest conditions under which they might be deductible.