If you have a car that you use strictly for business purposes and carry business-use type insurance, you have the ability to deduct any costs that relate to your vehicle. Strictly commuting to and from work does not constitute business purposes and being reimbursed for the use of your car for business-related reasons by your employer will restrict you from being able to use this as a tax deduction.
Business-Use Car Insurance
The only way that you can claim auto insurance as a deduction with your taxes is if you are using your car for business reasons. A business-use auto insurance policy involves using a standard vehicle for only business reasons such as in the instance of a salesperson who visits people in their homes.
Every insurance carrier is going to coin the term ‘business-use’ in a variety of different ways. This is something that you need to speak to the insurance agents regarding so that you are sure to get the appropriate deductions and so that you have the proper coverage pertaining to your business needs.
Business-use auto insurance coverage is going to typically be more expensive than that of a traditional standard personal policy. Generally, a business use auto policy will cost upwards of approximately 10% above that of a pleasure-use plan.
Car Insurance Deductible Write Off
Personal losses that come due to casualty or theft despite being covered by a carrier are not able to be deducted with the start of the tax year with the exception of property losses that may take place among one of the few federally-mandated disaster regions and have been designated to be a result of that disaster.
Documentation For Tax Files
Having good records available is important when you are able to deduct your car insurance from your tax bill. These records that you keep to show your driving history should be held onto for at least three years in case the IRS should ever ask for justification of your auto insurance tax write-offs.
Deducting Insurance On Tax Returns
Claiming auto insurance expenses as a tax deduction can be done in a couple of different ways. It’s always best to speak with a tax professional to make sure that you follow the appropriate guidelines for filing your deductions. You want to do everything correctly when it comes to your personal taxes.
You can use the standard IRS tax deduction. You would need to check with your tax agent to find out what the standard mileage rate for business use for a vehicle for the current year is per mile.
With calculating your own expenses you would need to record all of your vehicle-related expenses. That would include your car insurance and gas costs. This is going to be beneficial when you file taxes as well as if you ever need to go through the audit process. A self-employed individual who files a Schedule C, there is generally a tax break available on your insurance costs. There are forms available to you to report your income and any loss that you incurred from a business that you are operating or happen to be the sole owner. If you are employed by a company where you use your vehicle, you are able to file Form 2106, which is an Employee Business Expense form. This is a form that pertains to any expenses which are helpful/important regarding the business. This can’t be filed if your employer is reimbursing you.
If you use your vehicle for a combination of personal and business purposes, you need to establish/prove the division of the usage. At the time of the tax filing, you will only be allowed to deduct the business-related costs. This can tend to be complex and will require a tax expert to assist you with the breakdown.
The critical thing to remember is that you want to discuss filing an auto insurance-related tax deduction with your accountant prior to sending in a tax return. The accountant is going to be able to give advice as to what deductions you actually will be eligible for and help you to properly fill out all of the necessary forms that need to be completed in order to receive the deductions. Make sure that you’re keeping accurate, complete records of your driving expenses to help the accountant in the process.
With each new tax year, it’s the perfect opportunity to take advantage of a chance to review your auto insurance policy to see if there are any changes that can be made in order to bring savings to your premiums. The carrier can recalculate your plan each year with life changes, better credit score, driving record improvements, and possibly lower your rates resulting in you paying less. You’re in charge of bringing savings to your budget. Do that wherever you’re able.