Is auto insurance tax deductible??

Even the best auto insurance companies for reasonable insurance rates can drain your bank account. If you are spending a significant amount on car insurance, you probably want to know if your car insurance is tax deductible. Car insurance is tax deductible if it counts as a business expense.

Examples would be freelance workers or employees using their personal cars primarily for work.  Continue reading to learn more about whether you can write off your car insurance. From when car insurance is tax deductible to how to write off auto insurance deductibles, we cover it all here. 

When Car Insurance Is Tax Deductible 

So, when can you deduct car insurance on your taxes? It all depends on how you use your car for work. Below, we’ve outlined the two situations where you can apply for tax deductions. 

For Freelancers/Self-Employed 

Car insurance is tax deductible for self-employed drivers. If you are a freelancer or self-employed, you can usually claim some of the costs of auto insurance and related expenses on your taxes as long as you use the car for business. If you just use your car for personal use, you can’t deduct anything. 

Here are some examples of using a car for business use: 

• Traveling between jobs, such as between one work site to another 
• Traveling between clients or customers 
• Traveling on business trips or to conferences 

Commuting to work doesn’t count as business use of the car, but if you are using your car for work for more than just driving back and forth to an office, you can count it as business use. 

According to TaxOutreach, you may also be able to deduct expenses other than car insurance, such as the following: 

• Gasoline
• Lease or loan payments 
• Tolls 
• Repairs and replacement 
• Parking

As long as the expenses are related to business use, you can claim them on your taxes. So if you spent $300 on gasoline driving to a conference, you could try to deduct it. Make sure you document how much you use your car for work and work-related expenses. That means saving any gas receipts, insurance receipts, and similar proof for when you file taxes. 

Personal Cars Used For Work 

If you aren’t a freelancer or self-employed, you may still be able to deduct auto insurance from your taxes if you use your personal car for business other than commuting. 

Generally, the list of W2 employees who can file is shorter than for self-employed workers. An example of someone who could file for car insurance expenses would be someone who is in the military reserves. Basically, if your employer doesn’t pay you extra to cover your work-related travel, then you may be able to deduct it from your taxes. 

Some examples of business use for a W2 employee include driving to meet clients, picking up work supplies for the office, and similar activities. As with self-employed and freelance workers, make sure to document your work-related car expenses, such as saving gas receipts and recording mileage. 

How To Deduct Car Insurance From Taxes 

Now that you know what qualifies as business use for tax-deduction purposes, we want to make sure we cover how you can deduct auto insurance from your taxes. If you are self-employed or freelance, you fill out the Schedule C form from the 1040 form found on the IRS website. On Schedule C there is a section to fill out the information on business expenses, which includes car and truck expenses and insurance expenses. 

If you claim car and truck expenses, you will need to answer further questions about your use of the vehicle, such as the mileage driven and proof of business use. This is where it is useful to have recorded your mileage throughout the year and kept receipts.  

If you are employed by someone else but use your personal car for business, then you will need Form 2106. This form is slightly more extensive than Schedule C, but like Schedule C you will need to answer questions about mileage, costs, and more to prove you did indeed use your vehicle for qualifying business purposes. Once again, keep in mind that commuting back and forth to work doesn’t count as a business expense and therefore can’t be deducted. 

Writing Off Car Insurance Deductibles 

An auto insurance deductible is an amount you pay in a covered claim. So if you have $2,000 worth of damage and a $500 deductible, insurance will only give you $1,500. Since you have to pay $500 to repair your car, you may be able to write off the deductible when you pay taxes.

However, you will need to have paid the deductible during the tax year. If you find your deductible too high to pay off, it can help to shop around for cheap auto insurance to find lower rates and a more affordable deductible.

The Final Word on Tax Deductible Car Insurance 

You can claim expenses on your tax forms if you use your car for business (other than commuting). Make sure to keep track of your mileage and receipts during the year to make it easier to claim tax breaks. 

If you can’t claim business use of your car but still want to find savings, shopping around for cheaper auto insurance can reduce your annual expenses. You can use our free car comparison tool to find the best rates from auto insurance companies in your area.