Can you claim car insurance on your taxes?
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UPDATED: Mar 19, 2020
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- There are very limited scenarios where you could potentially deduct your auto insurance premiums on your taxes. If you only use your car for personal reasons, then a tax deduction for your auto insurance premiums will not apply to you
- Driving your car to commute to and from work does not count as a business use of your car, so you would not be able to deduct your auto insurance premiums for this purpose
- To claim your auto insurance premiums as a tax deduction, you would need to show that it is used for business purposes and keep track of your use of your vehicle for business-related purposes
- If you run errands or use your car in the course of your job for things other than commuting, these uses may allow you to take a tax deduction for your auto insurance premiums
- If your employer gives you a reimbursement check for the mileage that you put on your car for business purposes, then you likely cannot claim your auto insurance premiums for a tax deduction
Everyone wants to take as many tax deductions that they legally can so that they do not fork over more of their salary than they have to for Uncle Sam.
Taking a tax deduction for your auto insurance premiums, however, is a tricky proposition because it is really only available for the business use of your car. You also need really good records of your vehicle expenses in order to include your auto insurance premiums as a tax deduction.
Using Your Vehicle for Business Purposes
You may be disappointed to find out that commuting to and from your job does not count as a business use of your vehicle.
However, if you were to run an errand for your work using your personal vehicle, this would be considered a business-related use of your car. Assuming that your employer does not reimburse you for the mileage that you put on your car, you may be able to claim a tax deduction.
The way that your auto insurance premiums can be included in a tax deduction for the business-related use of your vehicle is that it counts as an expense to be able to drive your vehicle.
After all, at least basic liability insurance is required in almost every state in the U.S. The other costs of owning a vehicle that could be treated as a vehicle expense include gas, tolls, parking, repairs, oil changes and maintenance.
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How You Calculate Vehicle Expenses to Take a Tax Deduction
The first option is a standard mileage deduction, which is probably the easiest way for you to keep track of your deduction. If you only use your vehicle for business purposes, then simply add up the total miles traveled and multiply by the standard IRS mileage rate for this year.
If you sometimes use your vehicle for personal reasons, then you need to keep a careful log of how many miles you drove for business reasons and how many were personal. This is important information to have in case you are audited by the IRS and need to show actual documentation of your vehicle expenses.
The other way that you can account your business-related vehicle expenses is by keeping track of the actual expenses for your vehicle. This is where a deduction for your auto insurance premiums would come into play.
For instance, you would maintain receipts for all car repairs, gas, tolls and your auto insurance premium payments for that year. Remember, if you use your vehicle for any personal travel, then you must exclude those expenses from your tax deduction.
Tips on Saving Money on Car Insurance Premiums
If you are interested in all of your potential tax deductions, then you are probably also looking for ways to save money on your auto insurance premium.
In addition to shopping around between different auto insurance companies to get the lowest possible quote, there are certain things you can do to actively reduce the amount of auto insurance premium that you pay.
First, if you have optional comprehensive coverage, take a look at the amount of your deductible and see if you can afford to pay a higher amount out of pocket in the event of a claim. If you can, then ask your auto insurance agent to raise your deductible and see what a lower rate you can get.
Also, check into discounts that you may qualify for. Remember that not every auto insurance company specifically advertises the discounts that it offers, so you need to be proactive in asking about them.
For example, if you have your car insurance and homeowners insurance through two different policies, you may be able to bundle them with the same company to get a better rate.
Recap on Tax Deductions for Auto Insurance Premiums
The only way that you will be able to take a tax deduction for your auto insurance premium payments is if you can show that you used your car or truck for business-related travel, which would not including commuting for work.
If this applies to you, make sure to keep accurate records of your payment, and consult with a tax accountant if you are unsure about anything.