Auto Insurance: Claiming Business Expenses

Whether you can expense your auto insurance depends on a few factors. If you use your vehicle for business purposes, you can deduct part of the total expense associated with running and maintaining the vehicle, including auto insurance expenses. However, if your vehicle is only used for personal reasons, you cannot deduct your auto insurance expenses. If your vehicle is used for both business and personal purposes, you can deduct your insurance costs from your taxes for the percentage of the time you use your car for business. For example, if you use your car for business 40% of the time, you can deduct up to 40% of your auto insurance costs.

Can I expense my auto insurance if I use my car for business?

If you use your car for business purposes, you may be able to expense your auto insurance. However, this depends on several factors, including your employment status, the nature of your business, and whether you use your vehicle for personal use.

Firstly, it is important to note that if you are an employee, commuting to and from work is generally not considered a business expense, and therefore you cannot deduct your auto insurance premiums. However, if you are self-employed or a business owner, you may be able to deduct your auto insurance premiums as a business expense. Other individuals who may be able to deduct their auto insurance premiums include reservists in the armed forces travelling over 100 miles from home, qualified performing artists, and fee-based state or local government officials.

If you use your vehicle for both business and personal purposes, you can only deduct the cost of its business use. This means that if you use your vehicle 50% of the time for business and 50% for personal use, you can deduct 50% of your expenses. To calculate this, you can use either the standard mileage rate method or the actual expense method. The standard mileage rate method allows you to deduct a standard rate per mile driven for business purposes. The actual expense method allows you to deduct the actual costs of operating your vehicle for business, including gas, repairs, insurance, and registration fees.

It is important to note that if you plan to deduct your auto insurance premiums as a business expense, you must have a business-use insurance policy. These policies are typically more expensive than standard personal-use policies but are required if you are using your vehicle for business purposes.

Before claiming any deductions, it is recommended that you speak to a tax expert to ensure that you qualify for the deduction and to determine the most advantageous method for your specific situation.

Can I expense my auto insurance if I'm self-employed?

If you're self-employed and use your vehicle for business purposes, you may be able to deduct your auto insurance costs from your tax bill. This applies to people who use their cars for work, for example, driving to different locations or meeting clients. However, if you only commute to a single place of work, this is considered nondeductible commuting.

There are two methods for calculating car expenses: the standard mileage rate and actual expenses. The standard mileage rate for 2024 is $0.67 per mile travelled for business. Using this method, you can't deduct auto insurance costs separately, but you can still deduct tolls and parking fees. With the actual expenses method, you can deduct the percentage of your eligible vehicle expenses that corresponds to the percentage of time you use your car for business. For example, if you use your car for business 30% of the time, you can deduct up to 30% of your vehicle expenses, including insurance, repairs, and maintenance.

If you're self-employed, you'll need to fill out a Schedule C form to report your expenses. It's important to keep accurate records of your business mileage and expenses to support your tax deductions.

Can I expense my auto insurance if my car is only used for commuting?

When it comes to car insurance, it's important to be honest about how you use your car. If you use your car for commuting, you need to specify this to your insurer.

Commuting is generally defined as anything you do regularly, such as driving to work, college, or school, or even doing a daily carpool. If you're only using your car to commute, you'll need to specify this when getting a quote for insurance. This is because the more you use the roads, the more likely you are to be involved in a road traffic incident.

However, if you only commute a few miles each way, your insurance premium may not be too high. The length of your commute is a factor in determining your insurance rate. If you commute less than 10 miles one way, your rate will be lower than if you commute over 15 miles.

If you use your car for work, such as driving for a ride-sharing app or making deliveries, you may need to look into commercial auto insurance. But if it's a company car, your employer should handle the insurance.

If you only use your car occasionally, you may be able to get a lower insurance rate as you'll be spending less time on the road and are therefore considered lower risk. Insurance companies usually classify your driving "for pleasure" if you drive less than 7500 miles a year, although some providers set the cutoff at 8000 or even 15,000 miles per year.

If you use your car for both commuting and pleasure, it's best to answer "commuting" as your primary vehicle usage. This will still cover you for pleasure use.

Can I expense my auto insurance if my car is used for both business and personal reasons?

If you use your car for both business and personal reasons, you may be able to deduct your auto insurance costs from your taxes for the percentage of the time you use your car for business. For example, if you use your car for business 50% of the time, you can deduct 50% of your yearly auto insurance costs.

There are two methods to calculate the amount of your deductible car expense: the standard mileage rate method and the actual expense method. The standard mileage rate method is a standard rate calculated by the IRS for the cost of operating your car for business. In 2024, the standard mileage deduction was $0.67 per mile tracked for business. The actual expense method requires you to determine the actual cost of operating the car for the portion of the overall use of the car that is for business. This includes gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation.

If you are self-employed, you will add the information to Schedule C. If you have business entities and file Form 1120, you will use Form 2106 to tally the expenses.

It is important to note that you cannot write off your car insurance if your business or employer reimburses you for the cost. Additionally, a car used to commute to and from work does not qualify as a business expense and is therefore not tax-exempt.

Can I expense my auto insurance if I'm a rideshare driver?

If you're a rideshare driver, you can expense your auto insurance by purchasing rideshare insurance, which is a type of commercial auto insurance. This insurance fills the gap in coverage between your personal auto insurance and the commercial auto insurance provided by your rideshare employer. It covers you during the "app on" period when you are waiting for or driving to pick up a passenger.

Rideshare insurance is not typically included with standard auto insurance coverage, and you will need to add it to your personal policy as an endorsement or add-on. This is because your personal auto insurance policy does not cover you when you are using your car for commercial purposes, such as driving for a ridesharing company.

Most major insurance companies offer rideshare insurance, including State Farm, Farmers, Progressive, and USAA. The cost of rideshare insurance varies but is typically affordable, with some companies offering it for as low as $6 per month.

It's important to note that if you don't disclose to your insurance company that you're a rideshare driver, they may cancel your policy or reject claims related to ridesharing activities.

In addition to rideshare insurance, you may also want to consider adding comprehensive and collision coverage to your personal policy. This will cover damages to your car in the event of an accident while driving for a ridesharing company, as their insurance policies often have high deductibles.

Frequently asked questions