A couple of weeks ago one of my good buddies from Boston asked me – Is Car Insurance Tax Deductible? To be honest, I didn’t know the exact answer. I mean, there’s some technical stuff I had to dig into to know for sure. Some people I’ve talked to already knew that if you drive a vehicle for “business purposes” you can most certainly claim a lot of vehicle-related expenses on your tax return. I didn’t know that – not a lot of folks do – and that’s why today I want to share with you my take on the matter.
I studied the subject very deeply, so now I’m ready to tell you guys about tax deduction in details, as well as all the pros and cons of every option you’ve got. Everybody knows that the budgets of middle-class United States citizens are getting smaller and smaller. Money is somewhat tight, and there’s no telling what’s up ahead. If you want to save a few extra bucks in these uncertain times, you could try to maximize your income tax deductions.
Don’t Miss On A Sweat Deal
A lot of folks underestimate the “allowable” insurance tax deductions. Don’t! In some cases, car insurance can actually be deducted (as well as other types of insurance). The law sometimes works in mysterious ways, and that’s I’ve prepared a few guidelines that will help you determine – is car insurance tax deductible, and when exactly you can claim your car insurance as a federal tax reduction.
Personally, I’d recommend talking to a tax pro or the IRS to be 100% sure that you are indeed legitimately authorized to make use of these strategies, and also to figure out what is the best way for you to approach this to gain maximum benefit. So, is car insurance tax deductible? Well, let’s find out!
Know Your Options
If you’re driving a truck or a car for business, you might be able to get an auto insurance tax deduction. This tax brake is usually available for you if you are – 1- self-employed (have a business of your own, that is) and file “Schedule C”, or if you -2 – need your car/truck to conduct business for your employer and file the so-called “Form 2106 Employee Business Expenses”. Important note: you must not collection compensation for mileage or other expenses if you want to get tax deduction when working for a company.
Gotta also point out, that if you only drive your steel friend for personal reasons, like driving around with your kinds, going shopping, meeting friends and attending the latest premieres in the theatres, you will NOT be legitimately able to claim any car insurance deductions on your tax return. Moreover, driving to and from work counts as personal use (that’s if you ask the IRS), so, don’t hope to claim it as a work-related expense. If it was claimable, I’m guessing the American economy could shake a bit, because the vast majority of United States citizens usually use their cars to drive to work, right?
The Hidden Dangers
And while auto insurance rates vary from one state to another, if your current job requires you to be constantly on the road, you could very well end up paying a big sum of money to insure your vehicle. And despite the fact that the premiums you have to pay for your car insurance depend on a lot of factors, your insurance rates could be draining your monthly salary like first-class vampires, if: you have to drive a lot in busy traffic because of your work schedule; you’re driving a rather expensive (or leased) car; you are not the king of the road, meaning you’re a relatively inexperienced driver. So, you can see now how tax deduction could be life-saving for some people, huh?
Option #1 – Actual Expenses Deduction
The thing is, you’ll have to pick between deducting mileage and actual car expenses. This is a very defining moment, actually, so, you need to think on this one hard and really be sure with your choice. Because the catch is, if you file a return and go with the actual expenses deduction, you won’t be able to “switch up” to mileage on subsequent returns unless you sell or trade your current vehicle (and that might never happen!)
Option #2 – Mileage Deduction
On the other hand, if you go with mileage in the very first year you start using the car/truck for business, the law will let you switch to actual expenses any year after the first one! Yep, that’s now it is, my friends, and that’s me trying to explain it all to you in the plainest English possible. What, you think the tax forms would say all that in an easy and understandable language? Come on, this is America, and nobody will bother putting it all simply if they don’t necessarily have to!
Is Car Insurance Tax Deductible? The Details
So, if you decide to go wise, and file Schedule C for mileage coverage, you’ll get the basic mileage rate (which is different every year, but the average is 50-55 cents per business mile driven). You have a different option here: you can also deduct the total of PPT (the personal property tax) paid on the car and any car loan interest. Remember, though, that if you choose to go this road, you won’t be able to deduce your auto insurance.
On the other hand, if you choose actual vehicle expenses, you can go as far as deducting depreciation on your car, along with all the money you have been spending on maintenance, tires, oil, gas, serious repairs, licenses, as well as your car insurance premiums.
Another important thing: keep in mind, that if you file the Form 2106 Employee Business Expenses, you can still opt for the basic mileage rate, however, you won’t get the auto insurance tax deduction or the interest and PPT deduction.
The Final Word
So, that’s about it. What do you think after reading my article? Is Car Insurance Tax Deductible? It depends, right? As you can see, you’ve got some options here, so, don’t rush it and take some time to think it all over. And no matter which option you choose to go with, no matter your situation, remember to always keep all of your receipts and make a “diary” of your business miles – you never know when you might need to provide proof. Insurance companies are all about documents and contracts, so, again, don’t throw away any receipts and keep your diary detailed and informative. Might save you a lot of troubles (and money) one day.