Is Car Insurance Tax Deductible? What You Need to Know
Why You Can Trust EverQuote
EverQuote powers millions of shopper requests every month, teaming up with industry-leading insurance specialists to address real-world challenges faced by people every day. We partner with the largest insurance providers in the nation, and our content is carefully crafted by experts and reviewed by licensed insurance agents for accuracy and relevance.
Is car insurance tax deductible? Many drivers wonder the same thing, especially those who drive for business purposes. Car insurance is indeed tax deductible in a number of cases, and it is important to know when you can deduct your car insurance on taxes and when you can't. This guide will share insights on auto insurance premiums and tax deductions to help you with your tax returns so you have the latest information on maximizing your insurance deductibles. You can also consult an accountant for more information.
Circumstances for Deductibility
Is car insurance deductible on taxes? As a general rule, you can take an insurance tax deduction if you own a business or are self-employed.
If you own your own business or are a self-employed freelancer or contractor and you use your car for business purposes, you can deduct car insurance and several other driving-related expenses on your tax return, but there are certain circumstances for deductibility.
- Exclusive business use: If you are a business owner or are self-employed and your vehicle is used exclusively for business — meaning you never use the vehicle for any personal purposes — you can deduct auto insurance costs from your taxes.
- Mixed-use vehicles: On the other hand, if your car is used for both business and personal purposes like ride-share drivers do, for example, you can deduct the portion of mileage used for work and for running your vehicle. You will need to track the portion of time that the vehicle is used for business and personal purposes.
- Employee vs. self-employed eligibility: If you are an employee of a company and do some driving for your job, you cannot take a tax deduction for your car insurance, even if your employer does not reimburse you for driving expenses. However, if you are self-employed, you can enjoy the tax deduction.
Is car insurance a tax deduction? If you have questions about whether you might qualify for a car insurance tax deduction, an accountant can help you take a closer look at your circumstances before you file your next round of taxes.
How to Deduct Car Insurance on Taxes
If you fall into a qualifying category for a deduction and are interested in deducting car insurance on your taxes, you can opt for the standard mileage deduction method or the actual vehicle expenses method. It is important to understand the differences between the two and when you can switch between these options.
Standard Mileage Rate Method
If you choose this method for deducting car insurance, you have to use it "in the first year the car is available for use in your business," and you must make this selection by the due date of your tax return. After that, you can select between the two options. If you lease your vehicle and go with the standard mileage rate method, you must use it for the entire lease period.
The standard mileage rate is currently $0.70 per mile for business owners and those who are self-employed.
Actual Vehicle Expenses Method
This method involves determining the actual expenses related to operating your vehicle for business use. This will include car insurance as well as gas, oil, repairs, licensing, registration fees, garage rent, new tires, and more. You must keep track of each expense throughout the year.
Other Qualifying Expenses
You can also make deductions based on the wear and tear of your car that comes from business use.
- Maintenance and repairs: Keep track of all maintenance and repair costs, since these are also tax deductible when your vehicle is used for your business. This category can include oil changes, new tires, general vehicle repairs, and more.
- Depreciation: You can recover some of the costs related to business vehicle depreciation through section 179 of the Internal Revenue Service (IRS) tax code. In essence, you can deduct part of your car every year that you file taxes.
If you are self-employed, you will report these qualifying expenses on Schedule C. If you are a business owner looking for these deductions, you can use Form 2106.
Maximizing Your Tax Savings with Car Insurance Deductions
Understanding car insurance is critical to maximizing your tax savings. You can lower your car insurance costs by researching affordable car insurance options and finding comparisons that show you prices and features side by side. A custom car insurance quote from EverQuote is always free and is a great way to determine if you are paying too much for your current car insurance as well as examine new insurance company options. Check out EverQuote today to further maximize your tax savings and find the best car insurance for both your personal and business driving needs.