Even though tax season is far away, understanding what may appear in tax returns could save you some money in the 2018 tax season. Some tax deductible expenses you may have written off in the past include student loans, donations to your favorite charity, or your rent, depending on your state’s regulations. Did you know that many drivers are able to write off their car insurance as well?
Car insurance is not tax deductible for everyone. In fact, it is not tax deductible for most people. What determines whether or not someone is able to qualify for a tax break does not involve the vehicle make or mileage of the car or one’s driving history or information. Instead, how the car is used determines whether or not a vehicle will allow someone a write-off.
If you use a car for business purposes only, you should be able to write off the full insurance cost. Business owners and self-employed contractors with multiple job locations often have business vehicles that are eligible for a write-off. This write-off even includes the costs of gas and depreciation. If your job involves a significant amount of time on the ride, you may qualify for a tax write-off.
What may disqualify you from receiving a full tax deduction on your insurance come April is if the car is not considered a business vehicle. If you are a self-employed electrician with a truck you use to drive you and your supplies to each jobsite, you may receive a tax deduction. However, if you use only use this truck to drive you to and from your office, it is considered a personal vehicle and will not be considered a tax write-off.
What gets more complicated is if a vehicle is used for business and personal reasons. Many employees who are supplied with company cars often use them as their own personal vehicles as well. In this case, employees can still write off the insurance costs, but only to a certain extent, as determined by the fraction of time you spend driving with each purpose. If ¾ of the miles you’ve accrued in a company car are due to work and ¼ of the miles are due to personal reasons, ¾ of the insurance costs may be tax deductible.
If you drive for a ride-sharing company, for example, your car will be qualified as a business vehicle, but not entirely if you also drive it for personal errands and trips. When you turn on the ride-sharing app and start working, any expense you face will be tax deductible. When you close out of the app at the end of your workday, the gas and mileage you utilize will be on your dollar.
How do you file for an auto insurance tax return? The process involves patience and precise organization. You must have evidence to back up your request, so estimations are not adequate. Failing to provide a concrete number may result in penalties and back-taxes from the IRS, so be sure to support all of the information you provide.
Receiving tax deductions on your auto insurance could save you a substantial amount of money every year. If you believe your vehicle may be tax deductible for business purposes, contact your auto insurance company to see if they have any advice or information for you.