Everyone would like to save a little more money and paying less tax or getting a bigger return is definitely one of the ways that you can do that. If you can deduct your auto insurance from your taxes, you’ll pay less, which means more money in your pocket whether or not you get a tax refund check. But when is car insurance deductible? Do you have to own a business for the privilege of claiming your car insurance on your taxes? In this article, we’ll go over exactly how car insurance works as it relates to your tax filings and help you decide whether or not you can save some money.
Auto Insurance Tax Deductions for Personal Vehicles
When it comes to tax deductions for personal vehicle use, the rule is, most of the time you can’t claim it on your taxes. Your personal vehicle use (even if you use it to get to work) is considered a luxury expense by the IRS and not something that is required for your business (or job) to operate. The only time that there is an exception to this rule is when your employer has you use your personal vehicle to do company tasks.
For example, suppose that you work in a deli. If your boss expects you to help out with deliveries during the lunch rush and use your personal vehicle, you might be able to claim gasoline and car insurance on your taxes. You are using your car for business purposes and it doesn’t matter that you don’t own the business – the IRS will let you claim some of those expenses as a deduction.
However, keep in mind that if your employer reimburses you for the gas that you use, the mileage that you travel or any other compensation specifically for using your car on the job then you probably aren’t going to be able to claim anything on your taxes.
Auto Insurance Tax Deductions for Part-Time Businesses
Let’s talk about what happens when you use your vehicle part-time for business purposes. An example of this is a person that works a full-time job during the week (and drives to work in their vehicle) but then works part-time driving Uber on the weekends. This person might be able to claim a portion of their gasoline, their insurance premiums and possibly even depreciation and maintenance on their taxes. Talk to your tax advisor for details.
There are quite a few things that go along with these allowances. For example, if your business is real estate or sales of some kind, you might be able to claim entertainment expenses along with your car expenses.
One thing that you should be aware of is that you might have to pay additional car insurance if you plan to use your vehicle for any business purposes. If you tell your insurance agent that you deliver pizzas on the weekend with your car, you can expect your next premium to increase by a lot.
Auto Insurance Tax Deductions for Full-Time Vehicle Use in a Business
That brings us to full-time use of your vehicle for business purposes. If you are using your car for business and you are carrying personal insurance on it you could be in big trouble if you get into an accident. Your insurance company could refuse to pay a single dime if you aren’t carrying the (much more expensive) commercial car insurance. Of course, the corollary is that you are paying for commercial car insurance and should be able to deduct the entire insurance premium from your taxes as well as any deductibles you have to meet.
In fact, if you buy a car specifically for your business and you use it only for that, you will be able to deduct most of the expenses associated with that vehicle including the actual purchase price (or lease payment) for the vehicle, any maintenance you have to do on it, tolls and more.
So, the short answer is yes, auto insurance is tax-deductible in certain circumstances. If you are using your personal car for helping out around your office or entertaining clients you might be able to get some tax relief, but you have to be careful because it only counts if you’re paying it out of your pocket, which means your employee isn’t reimbursing you or giving you a transportation allowance or bonus.
In addition, if you own a business and you use your car either part-time or full time to help run that business you can often deduct varied expenses as long as you are actually using that car for business, and not just owning the car while you own a business. You may have to pay commercial car insurance if you are using a vehicle for business purposes though.