The car insurance premium and car insurance deduction are the two main forms of payment that you must make in connection with car insurance. Can you write off auto insurance?
Using the car for work
Basically, you can calculate expenses for business vehicles in one of two ways: the standard mileage rate or the actual cost method. Depending on the situation, you may qualify for one or both methods. If you qualify for both – and you don’t mind dividing numbers – you may want to calculate both ways to see which method gives you a larger deduction.
Standard mileage rate: Car insurance is not listed as its own cost, but is calculated at the rate calculated by the government (56 cents / mile in 2019 or 57.5 cents / mile in 2020).
Real cost method: List separate car operating costs (including gas, oil, repairs, tires and insurance) and subtract the percentage of those costs that can be attributed to miles driven for business purposes.
Of course, it is possible that car expenses (including car insurance) may not be tax deductible at all.
Here’s what to expect in a few typical situations:
- For business owners: According to the IRS, companies with and dependent on the use of company cars or vehicle fleets may deduct car insurance as a business expense if it concerns your profession, company or profession.
- If you are self-employed: If you are self-employed and use your car only for business purposes, you may be able to deduct some car related expenses, including insurance premiums. Pursuant to the Act on Tax Reductions and Employment, taxpayers may not demand various specified deductions for unrealized travel costs of employees.
- If you use the car for both business and personal reasons: in this situation only the part used for business reasons is tax deductible. You cannot apply for travel to and from work, but there are deductions for work-related obligations, such as visiting clients or collecting work materials.
For more information on business car use, read this tax topics guide on the IRS website.
If you have suffered loss or theft of a vehicle this year, you can deduct it in your tax return.
Regardless of whether you use your car for business or private purposes, you can apply for a loss deduction if your car has been stolen or recognized as “total loss”. To qualify for a deduction for a car that has been stolen or has declared a total loss:
- You must apply for car insurance.
- An accident cannot be the result of negligence.
- Your insurer cannot refund you completely. However, if your car damage exceeds your insurance limits, you can deduct the difference. It is also possible to deduct tax deductible costs from car insurance.
- Your costs must be greater than USD 100 and more than 10% AGI.