Is car insurance tax deductible?

If you are looking for ways to save money on car insurance, as well as searching for discounts and ways to reduce your costs you may be wondering, is car insurance tax deductible?

Businesses and individuals who use their car in a trade or business can claim a deduction for the expense. If you are in an accident, you may be able to list any deductible amount you have to pay as a tax write-off. You need to maintain detailed records of your vehicle to document your deduction and to make sure the expense is properly reported. Learn how with this useful guide.

When are car insurance premiums tax-deductible?

Auto insurance rates can be expensive, depending on the type of car insurance coverage you get. When learning car insurances basics, one question that arises is can you write off car insurance on your taxes?

If you own your own business, you can deduct the expense associated with operating any vehicles used by the company. Likewise, if you are an employed individual and use your car while conducting your trade or business, you can claim your car insurance on your taxes. However, you cannot deduct the costs of operating your vehicle if you only use it to commute back and forth to work.

Two methods are available for the write-off of vehicle expenses:

• One approach is to use a standard mileage rate where your deduction amount is based strictly on the number of miles you drive.
• The other way to deduct your vehicle costs is to use the actual expenses. Under this method, car insurance is tax-deductible. Other vehicle expenses can also be deducted, including fuel costs, lease payments, and depreciation.

For individuals, if you are a contractor, you can write off car insurance costs on your Schedule C. If you are an employee, you need to use Schedule A to deduct the amounts paid as an employee business expense.

What if your car is used for personal and business purposes?

If you use your car for your business and during your time off, can you write off car insurance as a business expense? Yes, but you need to take care and keep records to determine the percentage of vehicle operation associated with the car’s business use.

The best way to keep track is to record the mileage in a log each time you use your vehicle for business. You will also need to note the starting mileage and ending mileage for your tax year.

You determine the total miles driven by subtracting the beginning year mileage from the end of year mileage. You then divide the total business mileage by the total miles for the year to get the percentage of business use.

After you’ve learned your business percentage, you can then figure out your car insurance deduction amount by multiplying the total insurance cost by the percentage of business use.

Can you write off the insurance deductible?

You may be able to write off the amount you have to pay for your deductible if your car is damaged. For individuals, casualty losses are deductible if they occur due to a federally declared disaster, such as a hurricane.

Under the tax law, individuals can only take a deduction on a loss if the claim is not compensated by insurance. For your auto insurance, the deductible is the amount you have to pay out of pocket if your vehicle is damaged. Your loss may be limited depending on the type of car insurance coverage you have. If you have comprehensive car insurance, the insurance proceeds cover the repair costs less the deductible amount. This makes the amount you pay for the deductible your actual loss.

In addition to being limited to federal disasters, the casualty loss amount is subject to a $500 floor. This means that you have to subtract $500 from the total deductible amount that you paid to determine how much you can claim as your loss.

What records of car expenses do you need to keep for your tax filing?

You need to keep detailed records of your vehicle expenses. Here is a list of documentation you should maintain to properly deduct your automobile costs:

• Costs of parts and supplies
• Gas receipts
• Invoices for maintenance and repairs
• Itemized insurance information with premium details
• Mileage log

It helps to keep a mileage log contemporaneously for each trip you completed. An accurate mileage log supports your expense claims and provides evidence of your deduction if you ever have a tax audit.

If your vehicle is available for personal use, record the miles driven. You will need the mileage log to determine the percentage of business use for the car. You have to report miles driven for business, commuting, and other purposes on your tax return.

To determine which part of your auto insurance payments are deductible, multiply the total payment by the percent of mileage associated with the business use of the car.

Deducting Car Insurance on Your Taxes

Everyone who pays taxes is always looking for a way to reduce their bill. If you use your car in a trade or business, you can write off the amount you pay for insurance as an expense.

After reading this guide, you should be aware of what you need to do to claim your deduction and how you can take an additional write-off in the event of a casualty loss.