Car insurance policies are expensive, and if you have a bad driving record, and other unfavorable factors, then be prepared to shell out a lot of money to insure your car. That’s not all, even after paying so much to the insurance companies for policies and premiums, you still have to do your taxes. So is there a way you can save some money on both of these payments? Is there a way to deduct your car insurance from your taxes and save some money? Let’s find out.
Before we get into the main topic, let’s look at the different instances where you can deduct your car insurance and premiums from your taxes.
Personal vs Business Use
Whether you can deduct your car insurance from your taxes totally depends on how you are using the vehicle. For example, your car insurance premium will not be exempt from your taxes. This is because the personal use of a vehicle is considered an expenditure. If you want to write off your insurance expenses, you need to show them as your business expenses.
The expenses you have in operating your business allow you to get some tax benefits. Remember that you cannot get your entire insurance premium deducted from your taxes, and even then the process could be long and complicated.
Vehicles such as trucks, trailers, etc that are used to conduct business (such as carrying stuff from one place to another, etc) are tax-deductible. You’ll have to contact your insurance company to get the details as different companies have different policies. You cannot just show that you are conducting business with a vehicle that has general, private insurance policies.
Commercial vehicles need commercial auto insurance policies. These policies have higher coverage limits and cost more than personal insurance policies. This is why you need to get these policies (and even personal ones) from the best cheap auto insurance companies. This will not only help you save some money by getting the premiums exempted from your taxes, but you also get to save some money upfront.
For Self-Employed Business Owners
People who run their own businesses and that require any vehicle for commercial use can get their insurance premiums exempted from their taxes. All you need to do is keep a proper record of the charges, taxes, and other business expenses related to the vehicle. Since the insurance money is a business expense, you need to mention that in the records.
But if you work under someone else, or an organization and if you are getting reimbursed by your employer, then there’s no point in trying to get a write-off because it won’t work. Tax deductions for auto insurance also depend on the type of business you own. One of the most common businesses where you might need tax deductions for auto insurance is working for Uber and Lyft (and other similar services).
For Rideshare Auto Insurance
People who work for companies such as Uber and Lyft need to have and operate their own vehicles, and all the expenses that come with it. It is not advised to use your personal insurance while driving for these rideshare companies, because in the event of an insurance claim, your insurance company has the right to deny your claim and even drop you off if the accident was while driving for these companies.
You need to have a commercial car insurance policy, also known as a rideshare insurance policy that helps you switch between your personal and commercial auto insurance easily. You can deduct your rideshare insurance premiums and cost from your taxes. Not only that but there are other tax deductions that come with rideshare insurance.
For example, using the standard IRS mileage deduction allows some deduction from your taxes for the business use of your car. Any business-related use of your car, such as waiting for passengers, reaching the passengers’ location, or driving while you wait for other passengers can be used for tax deductions. The rate for standard IRS mileage deduction is 56 cents per mile.
So if you drove a total of 5,000 miles for a rideshare company, under the IRS mileage, your business expenses will be (5,000 x .56) $2,800. It is important to keep a proper record of the mileage you have while driving for the company and the mileage for your personal use. Any discrepancies will lead to complications and you might miss out on some tax benefits.
Apart from this, Uber and Lyft allow other tax deductions such as city and airport fees, tolls paid at freeway, highway, etc. You can also deduct the expenses of operating your car while working for the rideshare company such as gasoline, insurance, maintenance, etc. It is very important to talk to your company, insurance agent, and accountant (if you have any) to get more details.
No matter what your insurance company or employer covers, it is very important for you to keep tracking your mileage, know when you are using your car for business use and for personal use (and keep a record of it), and keep all the toll tickets and other papers that might be needed to get a tax deduction. Follow all these steps and you will be able to deduct car insurance premium and other costs from your taxes, but only for business uses.
