Are auto insurance premiums tax deductible?

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Things to Remember...
  • Cars driven for business-related purposes can be claimed on tax returns
  • If you only use your car for personal reasons like running chores, driving to meet friends or heading out to a movie, you will not be able to claim any auto insurance deductions on your tax return
  • The amount of the deduction will depend on how much your vehicle is being used to conduct business

Some people are aware that if they drive a car for business purposes they can claim certain vehicle-related expenses on their tax return. However, they may not realize that their auto insurance premiums are one of them.

Just like other costs that you may incur from driving a car while you’re on the clock, depending on your circumstances, you could be in line for some significant savings if you claim your auto insurance premiums as a tax deductible.

Find affordable car insurance for your work vehicle now by entering your zip code into the FREE box at the top of this page!

The Low Down

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While car insurance rates vary from state-to-state, if your job entails you to be on the road a lot, you could be paying a fair amount of money to insure your car.

Although the premiums a person pays for their auto insurance depends on many factors, your insurance rates could be having a substantial impact on your monthly budget if:

  • Your work schedule involves driving extensively in busy traffic
  • You operate an expensive or leased vehicle
  • You’re a relatively inexperienced driver

Thankfully, the Internal Revenue Service offers several ways in which you can claim your car insurance premiums as a tax deductible.

Personal Use

If you only use your car for personal reasons like running chores, driving to meet friends or heading out to a movie, you will not be able to claim any auto insurance deductions on your tax return.

In fact, commuting to and from work counts as personal use in the eyes of the IRS, and cannot be claimed as a work-related expense.

If it were possible, millions of Americans would be eligible for this deduction since driving to work is one of the more common ways that people use their cars.

Business Deductions

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If you’re self-employed and have to drive a car to conduct business, then your auto insurance premiums can likely be claimed as tax deductible.

The amount of the deduction will depend on how much your vehicle is being used to conduct business.

For example, if nearly all of your business is conducted on the road, then the deduction could be substantial. If most of your work is performed out of your home office, then the savings could be minimal.

If you’re unsure as to whether your business is or needs to be registered in your state, The U.S. Small Business Administration provides resources on who you may need to contact in your region to find out more.

Employee Deductions

Of course, there are thousands of people who are not self-employed who drive a car while they are working.

If your responsibilities as an employee require you to conduct business while driving or you’re frequently traveling to work-related meetings or events, then you could also be eligible for a tax deduction on your car insurance.

However, if the company you work for reimburses you for car-related expenses like gas, maintenance, and auto insurance, then you cannot claim these costs with the IRS.

If you’re not sure what your employer’s policy is in terms of these expenses, you should contact them as soon as possible to learn more about what’s covered and what is not.

Claiming Expenses

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If you use your vehicle for business and plan to claim your auto insurance premiums as a tax deduction, then there are two ways to do so with the IRS.

One route is by documenting the actual expenses that you incur because of your driving-related work. The other way is to make a claim based on a standard mileage rate.

If you are unsure of what you can claim, consult a tax accountant when it comes time to do your taxes.

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Actual Expenses

If you decide to claim all of the actual expenses from your work car, then it’s your responsibility to keep any receipts that are tied to the costs of repairs, fuel, licensing and insurance.

Not only do you need to do so as a means of accurately determining what your expenses were, but if you’re audited by the IRS, you will have to prove the costs.

Make sure to keep any receipts separate from your personal files, so that when it comes to tax time, you have the necessary information ready to go.

While in the long run, claiming your actual expenses could save you more money, it requires much more work. In addition, because most people do not solely use their vehicle just for business, determining what expenses are personal and which are work-related can be a difficult process.

This can be particularly hard when trying to determine what percentage of your car insurance premiums is related to your business or personal use.

If you have your own business, however, and one or two specific vehicles are only utilized during specific hours and never for personal use, then recording your actual expenses could be less complicated and well worth the time it takes.

If you’re unsure of how to record your car related expenses, you can refer to Chapter Five of the IRS publication regarding tax returns.

Standard Mileage Rate

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The other way to determine how much of your car expenses, including auto insurance premiums, can be claimed as a tax deduction is by utilizing the standard mileage rate.

Because this method does not require as much documentation, it is more suited for vehicles that are driven for both work and personal use. Therefore, many people and businesses elect to go this route.

If you drive a car for work, and your expenses are not reimbursed by an employer, then you should record the miles you travel for the purposes of business so that you can claim it on your tax return.

Since commuting to and from work does not count as conducting business, many companies record mileage after an employee has traveled to their place of work or to where a business meeting is taking place.

If you plan to utilize the standard mileage rate, be sure to record the necessary mileage in a notebook, laptop computer or on your Smartphone. You can determine the mileage you traveled by simply looking at your car’s odometer.

At tax time, you or your accountant will determine how much of the year’s total mileage came from work, by determining how many miles were spent commuting or driving for personal use.

The percentage of how many miles were allocated to conducting business can be utilized for claiming a tax-deductible on your car insurance premiums.

Although the rate can vary from year to year, in 2011, the IRS allowed drivers to deduct 51 cents per mile for all business-related vehicle expenses.

In order to utilize the standard mileage rate method for making a tax-deductible claim, you must choose to do so in the first year that the car is utilized for business purposes.

If you elect to use the actual expenses method, you must continue to make your tax-deductible claims in the same fashion for as long as the car is driven for work related reasons.

Leasing a Car

If you lease a car, van or truck that’s driven for business-related reasons, then you can also file for a tax deduction on your insurance premiums, utilizing either the standard mileage rate or actual expenses method.

Filing for a tax deduction using the actual expenses method, however, is a bit more complicated process. It may involve determining the leased vehicle’s inclusion amount if you’ve used it for longer than 30 days.

You can learn more about this process and inclusion amounts by referring to Chapter 4 of the IRS publication on filing your claim or by contacting an accountant.

Theft or Casualty Loss

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Aside from your car insurance premiums, you may also be eligible to apply for a tax deduction if your car is damaged by an act of nature, like a hailstorm or fire, or, if it’s vandalized or stolen.

You can only claim a theft or casualty loss tax deduction if:

  • Your insurance provider does not pay for the costs
  • The damages exceed $100, and
  • Are also greater than 10 percent of that year’s adjusted gross income
  • Any damages that your car incurred because of your own fault are not eligible.
  • Talk to an accountant

You may want to consider contacting an accountant if you’re unsure of how to file for a tax deduction on your auto insurance premiums after referring to various IRS or online resources.

If you’re a business owner using several vehicles for work or you spend an incredible amount of time driving for business-related purposes, this may be the best way to maximize your tax return.

You can find a Certified Public Accountant in your area by referring to the American Institute of CPAs website. Locate affordable car insurance for your business now by entering your zip code below!

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