Auto insurance can be expensive, so every bit of savings helps. No doubt, this thought has occurred to many Americans while filing taxes over the years. It makes perfect sense to wonder if car insurance is tax deductible, but claiming car insurance on your taxes can be difficult. Unfortunately, most people will not be eligible to deduct their auto insurance from their taxes. Only in certain scenarios can you deduct car insurance from your taxes.
Whether or not your car will fall under this category depends upon how you use the car. If you have a vehicle that you use heavily or primarily for business, your car insurance and insurance deductible may be tax-deductible. If your car is mostly for personal use, then it probably will not qualify. Either way, though, the nuances can be tricky.
Is my auto insurance tax deductible?
So, can I write off car insurance? It depends. For cars that are exclusively used as business vehicles, the answer is generally yes. The insurance costs for business vehicles fall under business expenses and is deductible on your taxes as such. This can work for both self-employed and traditionally employed people. Suppose your personal vehicle is used exclusively for business. In that case, you can often write off the cost of its insurance on your taxes.
So, when is auto insurance tax deductible? When your car is specifically used for business and nothing else, you can file either a schedule c form or a form 2106 when you do your taxes. These forms allow for reporting of auto insurance premiums and deductibles as a business expense. If you are self-employed, look for the schedule c form. Otherwise, you will use form 2106 to report your auto insurance business expenses.
What if my car is used for both business and pleasure?
Things can be a little more complicated for drivers whose vehicle is both a business and a personal car. In many cases, you can calculate what percentage of the time the vehicle is used for business vs. personal use and write that percentage of the insurance premiums off as a business expense. Some companies may have minimum amounts that prevent drivers from doing this when business use is a rarer occurrence.
For rideshare drivers, such as drivers for Uber or Lyft, it is often necessary to purchase special types of insurance policies that are only active while the vehicle is in business use. These policies usually include extra coverage for passengers to reflect the taxi-style use of the vehicle. In those cases, that rideshare insurance policy is a business expense, and the associated costs are tax-deductible.
When filing your taxes, you will need to complete either a schedule form C or a form 2106. The first is for those who have a traditional employer, while the second is for those who are self-employed or who work as rideshare drivers, like for Lyft or Uber.
Writing off your car insurance deductible
For those whose car insurance is tax-deductible, you can often write your car insurance deductible off as well. This write-off is only possible if you have had to pay that deductible during that tax year. Suppose you have not had to pay your deductible or file a claim. In that case, there is nothing to report beyond the regular premium payments.
All tax filers need to remember the standard deductible when filing taxes. If your write-offs do not add up to more than the standard deductible, then they will not save you money on taxes. The reason is that the standard deductible is an ‘either/or’ mechanism. You either use it or your own tallied deductions. If your totaled deductions exceed the standard deductible, you can replace the standard deductible with your calculated deductions.
Deducting your car insurance on your tax forms
When filing taxes, you may be able to add some or all of the cost of your auto insurance into your business expenses. For self-employed individuals and rideshare drivers (such as Uber and Lyft), you will need to fill out a particular form that includes reporting for auto insurance expenses. This form is called the schedule c form and can be found on the IRS website. Otherwise, if you work for an employer but still use your own vehicle for business, you can fill out a form 2106, allowing you to report business expenses.
There is a final caveat to whether you can claim your vehicle for a tax deduction. Day-to-day commutes to and from work usually will not qualify as business use. Even if you only use your car to commute between work and home and nothing else, it is unlikely to be eligible for tax deductions. In general, only driving done during your business hours and for business purposes is eligible.
Frequently asked questions
Who has the best car insurance?
The best car insurance for one person may not be the best for another. Auto insurance policies and their rates are individualized enough that it can take a little research to find the best car insurance for you. Consider starting with the Bankrate guide to the best car insurance companies for 2021.
How much car insurance do I need?
Most states—all but three—have minimum amounts of auto insurance required by the law for all drivers in that state. In general, states require a minimum amount of bodily injury liability coverage and property damage liability coverage. The exact amounts vary by state.
How much does car insurance cost?
Actual costs vary between drivers, plans and companies. Still, the average cost of a full coverage auto insurance policy in the U.S. is $1,674. Depending on where you live, how clean your driving record is, and other factors, your costs may vary significantly.
How do I get car insurance?
Finding good car insurance often starts by comparing quotes from multiple companies. To do this, though, it is helpful to know a few things about your vehicle and about the types of coverage you might want. For a deeper look at how to get car insurance, consider the Bankrate guide.