Auto Insurance Deductible: Tax Claim?

Whether you can claim auto insurance as a tax deduction depends on how you use your vehicle. If you use your vehicle for personal reasons, you likely cannot deduct your car insurance costs on your tax return. However, if you use your vehicle for business purposes, you may be able to deduct your car expenses, including insurance, as business expenses. Self-employed individuals who use their car for business purposes frequently deduct their car insurance premiums. Employees who use their car for work can no longer take an employee business expense deduction unless they are in specific professions, such as Armed Forces reservists, qualified performing artists, or fee-basis state or local government officials.

Self-employed people can deduct car insurance from their taxes

Self-employed people who use their vehicles for business purposes can deduct their car insurance from their taxes. This is because the IRS considers the cost of car insurance to be a business expense. However, this deduction is only applicable if the vehicle is used for business purposes. If the vehicle is only used for personal use, then the car insurance premiums cannot be deducted from taxable income.

There are two methods for figuring out car expenses: the standard mileage rate and actual expenses. The standard mileage rate for 2023 is $0.655 per mile. This rate is adjusted annually and was $0.67 per mile in 2024. If you use the standard mileage rate, you cannot deduct auto insurance premiums separately. However, you can still deduct tolls and parking fees. With the actual expense method, you calculate the percentage of driving done for business and the total cost of operating your car, including depreciation, gas, oil changes, registration fees, repairs, and car insurance.

If you use your vehicle for both business and personal purposes, you must split the expenses. The deduction is based on the portion of the mileage used for business. For example, if 70% of the miles you drive are for business, you can apply 70% of your expenses to your deduction.

Self-employed individuals will use Schedule C: Profit or Loss From Business to deduct car-related business expenses, including insurance. It is important to note that you cannot deduct the cost of basic local telephone service for the first telephone line you have in your home, even if you have a home office. However, you can deduct 100% of the additional cost of long-distance business calls or the cost of a second phone line dedicated solely to your business.

In addition to self-employed individuals, there are a few other specific groups of people who can deduct car insurance from their taxes. These include Armed Forces reservists traveling up to 100 miles away from their homes, qualified performing artists, and fee-basis state or local government officials.

Armed forces reservists can deduct car insurance

Reservists can also deduct additional employee business expenses if they itemize deductions on Schedule A. This is generally a better option if you have enough deductions to exceed the standard deduction for your filing status.

If you are a reservist who uses your vehicle for both business and personal purposes, you will need to split your expenses. The deduction is based on the portion of mileage used for business.

Qualified performing artists can deduct car insurance

In the United States, certain performing artists are eligible to deduct the expenses incurred in the course of their employment as performing artists ("performing artist expenses"). This is known as the Qualified Performing Artist (QPA) deduction. To be eligible, a taxpayer must meet the following criteria:

• The taxpayer must have worked as a performing artist as an employee (not an independent contractor) for at least two employers.
• The amount of the expenses attributed to rendering services as a performing artist must exceed 10% of the taxpayer's gross income attributed to such services.
• The taxpayer's adjusted gross income (AGI), excluding this deduction, must not exceed $16,000.
• The two employers must each pay wages to the taxpayer of at least $200.

QPA is an "above-the-line" deduction, meaning it reduces a taxpayer's AGI, increasing eligibility for tax credits and other tax deductions while reducing taxable income.

To claim car insurance as a deduction, qualified performing artists can use either the Actual Expenses method or the Standard Mileage method. The Actual Expenses method allows artists to deduct all business-related vehicle expenses, including car insurance premiums. The Standard Mileage method allows artists to deduct an amount based on the actual miles driven for business, using a cents-per-mile rate. Artists can choose the method that yields the higher deduction, but they can only use one method per year.

It is important to note that incorrectly attributing expenses can result in penalties and interest from the IRS and state tax agencies. Consulting a tax professional is recommended to ensure accurate reporting and compliance with tax laws.

Fee-basis state or local government officials can deduct car insurance

Generally, car insurance is not tax-deductible if you only use your vehicle for personal reasons. However, if you use your car for business purposes, you may be able to deduct your car insurance premiums and other vehicle-related expenses from your taxable income. This includes self-employed individuals, business owners, and certain other specific individuals.

To deduct car insurance and other vehicle expenses, you can choose between 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 purposes, which was $0.655 per mile in 2023. This method does not allow for the separate deduction of auto insurance premiums, but you can still deduct tolls and parking fees. The Actual Expenses method includes car insurance premiums and other expenses such as repairs, lease payments, registration fees, and licenses. You can choose either method and switch between them year to year without penalty, selecting the option that provides the higher deduction.

It is important to note that if you use your vehicle for both business and personal purposes, you will need to divide the expenses based on the miles driven for each purpose. Proper record-keeping is essential, as you may be asked to justify your deductions from previous tax years. Consulting a tax professional is recommended to ensure you are claiming all eligible deductions and complying with the relevant regulations.

You can't deduct car insurance if it's for personal use

If you use your vehicle strictly for personal use, you cannot deduct your car insurance costs on your tax return. This is because car insurance is only tax-deductible for certain individuals and specific scenarios. For example, self-employed people can usually deduct car insurance costs as a business expense. However, if you are using your personal car for both personal and business purposes, you will need to divide the expenses accordingly.

There are two methods for calculating car expenses: the standard mileage rate and actual vehicle expenses. If you opt for the standard mileage rate, you cannot deduct auto insurance premiums separately. This method allows you to deduct a set amount for each mile driven for business purposes. The standard mileage rate for business use of a vehicle was 57.5 cents per mile in 2020, 54.5 cents per mile in 2018, and 58 cents per mile in 2019.

On the other hand, if you choose to calculate your actual vehicle expenses, you can include car insurance premiums as part of your deductible costs. Other items that can be included in this category are deductible car repairs, lease payments (subject to the lease inclusion amount), registration fees and licenses, tolls, and parking fees. It is important to note that you must use your vehicle for business purposes to qualify for this deduction.

If you are an employee using your personal vehicle for work, you may be able to deduct unreimbursed vehicle expenses if your employer does not plan to reimburse you. This applies to scenarios where you use your vehicle to pick up or deliver business supplies, drive to visit clients, or attend a business conference. However, simply commuting to and from work does not count as a business-related purpose.

In addition to the above, certain individuals qualify for tax deductions on car insurance, even if they are not self-employed. These include Armed Forces reservists traveling up to 100 miles away from their homes, qualified performing artists, and fee-basis state or local government officials.

Frequently asked questions