Can I claim car insurance on my tax return?

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Things to Remember...
  • In order to qualify for a car insurance deduction, you must drive for business purposes
  • You can deduct vehicle expenses by calculated the actual expenses incurred or by taking a standard deduction
  • You’ll need to provide proof of car insurance costs if using an actual deduction method
  • You may be eligible for a deduction for depreciation or unreimbursed bills after a loss

When you own a car that’s used for business purposes, you’ll take on a huge expense to maintain that vehicle and insure it.

Fortunately, at tax time you might be able to make the auto-related expenses work for you by claiming some or all of them on your taxes as deductions and tax write-offs.

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While not all taxpayers are entitled to auto-related deductions, those who are can reduce their tax liability and possibly increase their federal refund.

It’s so important that you know the law and how you can legally lower your taxable income before you file your income taxes for the prior year.

Not only do you need to know the tax deduction methods, you’ll also need to know what qualifies as business use and what doesn’t.

If you’re not familiar with deducting auto-related expenses, it’s time to learn your options. Read this guide to car insurance write-offs and learn the difference between standard and itemized deductions so that you’re prepared once April 15th comes around.

What qualifies as business use?

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It’s easy to get confused as to what qualifies as business use. After all, if you use your car for business, wouldn’t you naturally need a business auto insurance policy instead of a personal auto insurance policy?

What some people don’t know is that their personal car insurance policy will extend coverage to a private passenger car that’s being operated for both personal and business use.

If the car’s being driving for business 100 percent of the time or it business equipment, it needs to be covered under a commercial plan.

Now that you understand the difference between personal auto and business auto exposures, it’s time to learn what’s classified as business use and what’s not.

For auto-related expenses to be considered deductible, you must be driving for business and not strictly commuting to and from a single work site.

Here are some examples of business use that qualify you for deductions:

  • You’re self-employed
  • You drive to sales meetings away from usual office or site
  • You’ve been reassigned to a new office temporarily that’s further from your home
  • You travel to buy supplies and equipment
  • You drive out-of-state for conferences and meetings
  • You go to multiple client’s offices for business meetings
  • You drive to the airport for business travel

What types of auto-related expenses can be written off?

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For an auto-related business expense to be written off, it needs to be considered both necessary and ordinary. While mileage is perhaps the biggest deduction that you’ll be able to take, it’s not the only one you should know about.

The only time that you can deduct mileage is when your employer doesn’t already reimburse you. If you’re being reimbursed already, you might still qualify for write-offs for the following actual expenses that you’ve incurred throughout the year:

  • Fuel
  • Oil changes
  • Vehicle repairs
  • Maintenance
  • Registration fees
  • Lease payments
  • Depreciation
  • Tolls
  • Parking fees
  • Insurance premiums
  • Uncovered claims

So even if you’re not eligible to write-off the miles you’ve driven for your employer, you could still have other deductions that can help lower your tax liability when you’re driving your car for business.

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How much of your expenses can be written off?

You can’t just write off every single expense that you’ve incurred throughout the year when it comes to maintaining or operating your vehicle. If you could write off every expense, you’d have a huge deduction by taking the more complex actual expense deduction.

For most business operators, taking actual expense deductions are more beneficial because you’ll be able to actually deduct what you’re forking out money for.

When you do this, you’ll get a write-off based on what percentage you drive the car for business.

One hundred percent of the expenses can be written off if the car’s strictly driven for business, but only 50 percent of the expenses can be written off if the car’s used half of the time for your personal needs.

The Methods for Deducting Auto-related Expenses

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There are two different ways that you can go about taking a tax deduction for your car expenses. You can either choose a standardized deduction method or the actual expense deduction method.

The standardized method is simplified and doesn’t require record-keeping or receipts. The actual expense method, however, requires record-keeping and receipts that show the expenses you’ve paid for business use.

You’ll only be able to claim your car insurance on your taxes if you take the time to fill out the forms to file deductions for the actual auto expenses incurred.

If you’re trying to take a more simplified approach when you file your taxes, you won’t be able to specifically claim your auto insurance premiums. Instead, you’ll get a standardized deduction as it’s set forth by the IRS.

How to Keep Records to Get Prepared for Tax Season

It can sound intimidating when you’re expected to keep a running record of all of your mileage and all of the expenses that you’ve paid, but new record-keeping systems have made tracking and recording information easier than ever.

You can even attach scanned copies of receipts to your records and keep them saved in a digital file for safe-keeping.

It’s important that you’re meticulous with your records. You should track daily miles through a tracker or on an excel spreadsheet.

You should also record the following:

  • Fuel expenses
  • Maintenance expenses
  • Repair expenses
  • Insurance invoices

Saving this information will make filing the necessary forms for actual expense deductions much easier and less intimidating. If you have a loss, be sure to track expenses you’ve covered out-of-pocket as unreimbursed losses may be write-offs, too.

The U.S. tax code can be very confusing when you’re not well-versed in it.

Fortunately, there are programs and guides that call help you sift through the words to understand the real meaning. It’s possible that your car insurance premiums could qualify as a write-off if you’re a business person.

Even if it’s a write-off, it’s important to find the lowest possible rates. Start to compare auto insurance premiums with our online rating tool below and then these premiums may be deducted later. Enter your zip code below to begin.

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