Is Car Insurance Tax Deductible?

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When tax time rolls around, there’s a long list of deductions you can make to reduce your taxable income. Let’s find out if your car insurance premiums make this list.

Is Car Insurance Tax Deductible?

Car insurance generally isn’t tax deductible unless you use your vehicle for some business purposes. If you use your car strictly for personal use, you can’t deduct any auto insurance. If you do use it for business, you can only write off car insurance premiums if your employer doesn’t reimburse you for them already. Commuting to and from work doesn’t qualify as a business expense, either.

If your employer or company gave you a car to use specifically for work, you can deduct all expenses related to that car from your taxes as long as your employer doesn’t already reimburse you for it. This includes insurance, gas, and repairs.

If you use your personal car for work sometimes – like driving to and from job sites or visiting clients – you can deduct vehicle expenses (including insurance) for the amount of time you used it for business, depending on the way you deduct it.

Some common situations when you could be using your personal car for business include:

  • An Uber, Lyft, or another rideshare driver
  • A contractor who uses their truck to go to job sites
  • A realtor driving to and from houses
  • A food delivery or grocery shopping service driver, such as DoorDash, UberEats, Grubhub, Instacart, etc.

Keep in mind that if you’re driving for a rideshare company, you may need specific insurance on your car depending on what your provider says. Be sure to notify them if you start driving people. If you do need insurance specifically for ridesharing, you can deduct it as part of your business expenses. If you use your car for any business-related activity, you likely need some form of extra protection.

Understanding the Income Tax Exemption on Car Insurance

Recent changes to the tax laws made it less common to deduct car insurance from taxes. However, you typically can deduct business-related car expenses from your taxes in two ways: either the standard mileage method or the actual expenses method. While both can give you equitable write-offs on your taxes, technically only the actual expenses method includes the cost of car insurance.

To utilize the actual expenses method, you need to determine what percentage of the time you used your personal car for work. Then, you take whatever that percentage is and multiply it by your total vehicle expenses. This includes insurance, gas, maintenance and more. You can then deduct this number.

For example, let’s say you drove 10,000 miles last year. Your car expenses (including auto insurance) totaled $5,000. You determine that 3,000 miles out of the 10,000 were for work. That’s 30%. So, you can multiply the $5,000 by 30%, which would give you $1,500. You could deduct $1,500.

Be sure to keep track of all the expenses you plan to include, though, with receipts or bank statements in case the IRS wants to look into it.

When Is Car Insurance Tax Deductible For Self Employed People?

Many people who use their personal vehicles for business purposes are self-employed. If this is the case, you can still deduct your auto expenses, including car insurance, using either the actual expenses or standard mileage method. Remember, the actual expenses method will require you to factor in your auto-related costs to subtract, like car insurance.

But, when you’re self-employed, the line between business and personal use can be blurry sometimes. Here are some common vehicle use scenarios that are considered deductible business expenses when you’re self-employed:

  • Traveling to a conference/seminar/meeting
  • Traveling to see a client or make new clients
  • Driving to buy supplies or materials

There are plenty more, but, to deduct a travel expense, it has to be explicitly business-related. If you’re deducting a lot of travel with your personal car, be sure to keep track of everything accurately. You’ll need to be able to verify if the IRS wants to confirm.

If you’re self-employed or a rideshare driver, you’ll need to file a Schedule C form when doing your taxes. This form has a place to deduct your vehicle expenses, including auto insurance premiums.

If you were driving your personal vehicle from an employer that you receive a W-2 form from, you’ll need to file an Employee Business Expenses form, called Form 2106, to deduct the work-related car costs. Remember, you won’t need to do this if your employer already compensated you for the costs.

To stay on the safe side, be sure to consult your accountant or a tax professional. Taxes can be confusing, to say the least, and it’s better to know what you’re doing beforehand so you don’t end up having to fix a mistake later on. 

Are Car Insurance Deductibles Tax Deductible?

You generally can’t write off your car insurance deductible on your taxes. If you filed an auto claim in the past year, you had to pay your deductible. This was likely around $500 or $1,000. You can’t write off this expense unless your car damage occurred in a federally declared disaster area and your car was destroyed by the disaster.

In the wake of severe storms, such as hurricanes, floods, wildfires, or tornadoes, the President or FEMA can declare the affected areas a disaster. This formal statement enables different forms of federal help and relief to the area. Certain tax breaks are a form of relief. The IRS publishes updates on who’s eligible for disaster-related tax relief on their website.

If you’ve been in a federally declared disaster, the IRS will allow you to deduct personal property losses not covered by your insurer. If you file a car insurance claim as a result of damage from the disaster (which would likely be a comprehensive claim), your insurance typically doesn’t reimburse you for your deductible. So, you’d be able to write off your deductible at least partially.

But, consult your accountant or another tax professional before doing this. They’ll understand the specifics of the situation and tell you exactly how to file.

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The editorial content on Clovered’s website is meant to be informational material and should not be considered legal advice.

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