Tuesday, July 23, 2024
Auto Insurance

Save Money on Taxes with Car Insurance Premiums

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Who can save money on taxes with car insurance premiums?

Though we covet them, cars are expensive to own. Let alone the initial cost. Regular maintenance expenses can quickly add up.

For instance, the average annual cost of car insurance premiums is $1,553 in 2023, an uptick from 2018’s $1,190, according to USNews. 

It shows car insurance policy rates are increasing and finding a way to offset such an expense can provide relief and put some money back in your pocket.

Good news: Car insurance premiums can save you money on taxes. But how? It comes down to whether you use your car for personal or business purposes, or both.

Who can save money on taxes with car insurance premiums?

Drivers who use their cars for business purposes are eligible to deduct car insurance premiums on their tax returns using the Actual Expenses Method. Taxpayers in this category include business owners and self-employed professionals.

In addition, you may also deduct other car-related business expenses such as depreciation, gas and oil, registration fees, repairs and tune-ups, lease payments, and tires if you can prove that they are directly linked to business use.

What if you use your car for personal and business purposes?

If you use your car for personal and business purposes, your auto insurance premiums can save you money on taxes using the Standard Mileage Method. For instance, Uber or Lyft rideshare drivers.

You’re required to track your mileage during business hours to distinguish tax-deductible business expenses from personal use. You can then use the cents-per-mile rate approved by the IRS during tax season to calculate the amount you can write off. 

The rate is 65.5 cents per mile for 2023, but remember to check before filing as it is updated occasionally.

Though splitting business and personal use may be tricky, mileage tracking apps can help you record mileage and keep notes on business and personal trips.

 Also, keep any receipts that can help qualify your expenses, and previous years’ tax records –up to 3 years – just in case you’re asked to justify your deductions.

Who is not eligible?

Unfortunately, personal drivers are not eligible to write off their car insurance premiums when filing taxes. These are people using their vehicles for personal reasons only, like commuting to and from work.

In this case, you’re driving is not business-related, and your auto insurance premiums do not qualify as a tax-deductible expense. Generally, if you are an employee, you may not qualify.

What about unreimbursed business expenses?

Before December 2017, employees who incurred work-related car expenses and were not reimbursed by the employer could claim such expenses as “miscellaneous itemized deductions reported on Schedule A.”

However, The Tax and Jobs Act suspended such itemized deductions for tax years after 2017, and can no longer be written off as business expenses even if your employer doesn’t reimburse you.

Currently, only a few taxpayers, including qualified performing artists, Armed Forces reservists, and local government or fee-based state officials may deduct unreimbursed travel expenses.

Claiming car insurance premiums as a tax deduction

If you’re self-employed, you’ll use form Schedule C: Profit or Loss From Business to deduct car insurance premiums and other eligible expenses. If you qualify in any other way, use form 2106 Employee Business Expenses to report relevant expenses.

Before you send your returns, talk to a tax professional

Whether you qualify to deduct your car insurance premiums using the Actual Expenses or the Standard Mileage method, dealing with taxes can be a burden. 

A professional tax accountant can help you figure out eligible car-related business expenses, other auto deductions you qualify for, and how to correctly fill your tax forms.

Learn more about auto insurance, or talk to a local independent agent about the best auto insurance policy for you.

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