You may be able to deduct some or all of your car insurance this tax season.
Published on February 24th, 2021. Last Updated on .
In order to find out if your car insurance is tax deductible, we have to look at it in two different ways. The first is if you are using your vehicle for personal use and the second being using your vehicle for business-related purposes. This gets a little confusing when you are self-employed and using your vehicle for business-related purposes. Today, we will look at the differences between the two to give you a better idea if your car insurance is tax deductible.
Is Car Insurance Tax Deductible For Personal Use?
Using your vehicle for personal use does not usually allow you to deduct your car insurance for tax reasons. This included commuting to and from work, running personal errands, or driving for lunch during your lunch break. These types of deductions are reserved for business-related use only.
Is Car Insurance Tax Deductible For Business-Related Use?
If you are using your vehicle for business-related purposes, you may be entitled to tax deductions. If you are self-employed and are using your car for business purposes such as driving to clients, going to purchase supplies, or delivering items for your business, you may qualify. If you are an employee using your vehicle for business purposes and your employer is not planning to reimburse you, you may also qualify for deducting your car insurance for taxes.
Am I Able To Deduct Anything Else?
Insurance premiums are not the only thing that can be tax deductible when using your personal vehicle for business purposes. Items such as gas, repairs, parking, and value depreciation can all be claimed if you can directly prove that they were related to business use. One of the requirements for this will be that your auto-related costs will need to be more than 2% of your adjusted gross income. If your auto-related costs do not exceed 2%, you will not be able to claim these costs on your tax return.
How Can I Deduct My Car Insurance?
When doing your taxes, it is always suggested to have a professional help you out, especially if you plan on doing itemized deductions such as car insurance. If you are filing by yourself, you will need to make sure that you prorate your expenses. For example, if you do 70% of your driving for business and 30% personal, you will want to split your expenses up for the 70% and claim this on the appropriate tax form.