Auto Insurance Deductibles: Are They Tax Write-Offs?

Whether you can write off your auto insurance deductibles depends on how you use your car. If you use your car strictly for personal use, you cannot deduct your car insurance costs on your tax return. However, if you use your car for business, you may be able to write off certain expenses related to your insurance premiums and deductibles. This includes people who are self-employed and use their car for business purposes, or employees whose employer does not plan to reimburse them for expenses related to business use of their car. In addition to insurance premiums, you may also be able to deduct other auto-related costs, including gas, repairs, parking, and value depreciation, as long as these costs are directly related to business use.

Self-employed individuals can deduct car insurance

If you are self-employed and use your car for business purposes, you can deduct car insurance costs from your taxable income. This is because the IRS considers these costs to be business expenses. However, if you use your car for both business and personal purposes, you will need to divide the expenses between the two. This means that if 70% of the miles you drive are for business, you can apply 70% of your expenses to your deduction.

Self-employed individuals can choose from two methods to calculate their vehicle expenses: the Standard Mileage method and the Actual Expenses method. The Standard Mileage method allows you to deduct a certain amount per mile driven for business. The rate for 2024 is $0.67 per mile. This method is often preferred as it is simpler and usually results in a higher deduction. The Actual Expenses method allows you to deduct the actual costs of your vehicle, including insurance, repairs, and maintenance. To use this method, you must keep receipts for all your expenses.

It is important to note that commuting to and from work is generally not considered a business expense. Additionally, if you are an employee, you cannot deduct your vehicle expenses unless your employer is not reimbursing you for them.

Armed forces reservists travelling over 100 miles can claim

Armed forces reservists who travel over 100 miles away from home to perform their duties can claim certain tax deductions. This provision is applicable to members of the Reserve Component, which includes the National Guard and reservists.

Reservists can deduct unreimbursed travel expenses from their Adjusted Gross Income (AGI) or total taxable income. This means that the incurred costs are not refunded but instead reduce the amount of tax owed. For example, claiming $1,000 in travel expenses would lower the tax owed by approximately $200-$250, depending on the tax bracket. There is no cap on the amount that can be claimed as long as the expenses are reasonable.

To claim these deductions, reservists need to fill out Form 2106 or Form 2106-EZ, which are reported on Schedule 1 of Form 1040. The expenses that can be claimed include:

• Mileage or actual expenses if driving their vehicle, calculated using the standard mileage rate.
• Lodging costs, not exceeding the federal per diem rate.
• 50% of meal costs, also not exceeding the per diem rate.
• Parking fees, tolls, and ferry fees.
• Airfare, train tickets, or other transportation costs.

It is important to note that these deductions are only applicable if the travel is solely for official duty purposes and not for commuting to and from work. Additionally, any reimbursed expenses cannot be claimed as deductions.

Qualified performing artists can deduct auto insurance

The short answer is: it depends. If you use your car strictly for personal use, you likely cannot deduct your car insurance costs on your tax return. However, if you use your car for business-related purposes, you may be able to deduct part of your insurance premium. This includes people who are self-employed and use their car for business purposes, as well as employees whose employers are not planning to reimburse them for business-related car expenses.

Qualified performing artists are among the specific groups of people who can deduct auto insurance costs on their taxes. To be considered a qualified performing artist, you must meet the following criteria:

• Performed services in the performing arts as an employee for at least two employers during the tax year.
• Received wages of $200 or more from at least two of those employers.
• Had allowable business expenses attributable to the performing arts of more than 10% of gross income from the performing arts.
• Had an adjusted gross income of $16,000 or less before deducting expenses as a performing artist. If you are married, you must file a joint return unless you lived apart from your spouse for the entire tax year.

If you meet all the requirements above, you can include the portion of your expenses attributable to performing arts-related expenses in the total on Schedule 1 (Form 1040), line 12, and attach Form 2106 to your return. Your performing arts-related business expenses are deductible whether or not you itemize deductions.

Deducting actual expenses vs. mileage

When it comes to deducting vehicle expenses, you have two options: the standard mileage rate method or the actual expense method.

Standard Mileage Rate Method

Using the standard mileage rate method, you can deduct a set amount for each business mile driven. This rate is determined by the IRS and is updated annually. For example, the standard mileage rate for 2023 was 65.5 cents per mile, and for 2024, it has increased to 67 cents per mile. This method is generally favoured for its simplicity and ease of record-keeping. You only need to track your business mileage and total annual mileage, rather than keeping receipts for all your vehicle-related expenses. However, it's important to note that if you choose this method, you cannot deduct actual car operating expenses such as maintenance, repairs, fuel costs, insurance, and vehicle registration fees.

Actual Expense Method

On the other hand, the actual expense method allows you to deduct the business percentage of your total vehicle expenses, including fuel, insurance, repairs, and depreciation. This method may be more beneficial if you have a lot of vehicle-related expenses or if you drive a moderate amount. Additionally, you can include interest on a car loan, parking fees, tolls for business trips, and personal property tax paid when purchasing the vehicle. However, the actual expense method requires more extensive record-keeping, and you must keep receipts for all the expenses you plan to deduct.

The best method for you depends on your individual circumstances. Both methods have their advantages and disadvantages, and it's recommended to calculate your expenses using both methods each year to determine which one gives you the largest deduction and greater tax benefit. While the standard mileage rate method is often favoured for its simplicity, the actual expense method might be more advantageous if you have a high-value vehicle or significant vehicle-related expenses. Additionally, if you choose the standard mileage rate method in the first year of using a vehicle for business, you must continue using this method for that specific vehicle in subsequent years.

Filing a claim for a vehicle deemed a total loss

If your vehicle is damaged to the extent that it is deemed a total loss, you will need to file a claim with your insurance company. A total loss means that the repair cost exceeds the actual cash value (ACV) of the vehicle. Here are the steps to follow when filing a claim for a vehicle deemed a total loss:

Report the Loss:

Immediately report the loss to your insurance company. Most insurance policies require you to submit a sworn proof of loss within a specified time frame, usually within 91 days. The proof of loss statement should include the date of the loss, how it happened, and the purpose for which the vehicle was being used. Failure to report the loss or submit the proof of loss in a timely manner may result in denial of your claim.

Protect Your Vehicle:

Take steps to prevent further damage to your vehicle. For example, if you have a broken windshield, cover it to prevent rain damage to the interior. Failure to protect your vehicle from further damage may result in your insurance company refusing to cover certain repairs.

Cooperate with the Insurance Company:

Cooperate with the insurance company and provide any requested information. Submit to an examination under oath if required. Allow the insurance company to inspect the damaged property. Your insurance company will likely appoint a claims adjuster to work with you and determine the fair market value (FMV) of your vehicle.

Research the Vehicle's Value:

Before agreeing to a settlement, it is important to research the ACV or FMV of your vehicle. Look at similar vehicles in your area, considering factors such as age, mileage, condition, and price. Tools like Kelley Blue Book can help you determine the current market value of your car.

Review Your Insurance Policy:

Carefully review your insurance policy to understand your coverage and any applicable deductibles. If you have comprehensive or collision insurance, these coverages may help with your claim. Additionally, if you have rental coverage, your insurance company may provide a rental car for a certain period while your claim is being processed.

File the Necessary Paperwork:

Gather and submit all the necessary paperwork, including the title of your vehicle. If there is a lien on your vehicle, you will need to include the lending institution's information. You may also need to submit a no-fault application and other relevant documents if there were injuries or significant property damage.

Remove Personal Belongings:

Remove all personal belongings from the vehicle, but leave all sets of car keys inside. You will also need to remove the license plate and either turn it in to the DMV or transfer it to another vehicle.

Decide on Vehicle Storage:

Your insurance company will typically arrange to have your vehicle moved to a storage facility. In some cases, you may be able to choose to keep the totaled vehicle, but this may impact the value of your claim. Check with your local DMV for guidelines on retaining a totaled vehicle.

Agree on a Settlement:

Once the insurance company has assessed the damage and determined the value of your vehicle, you will receive a settlement offer. You can accept the offer or dispute it if you believe your vehicle is worth more. Provide supporting documentation, such as proof of modifications or upgrades, to negotiate a higher settlement.

Complete the Necessary Paperwork:

Sign the necessary paperwork to finalise the settlement and transfer ownership of the vehicle to the insurance company. If you are keeping the vehicle, you may need to complete additional paperwork, such as a salvage title or application for salvage value examination.

Receive Your Payout:

If you accept the settlement, you will receive a payout from the insurance company. If you own the vehicle outright, the payment will be issued to you directly. If you still owe money on the vehicle, the payment will go to your lender first, and you will receive any remaining amount.

Frequently asked questions