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Car insurance is tax-deductible for self-employed people who use their car for business reasons, as well as for some other select occupations. For example, car insurance is tax deductible for armed forces reservists who travel for duty for up to 100 miles from home, some performing artists, employees with impairment-related work expenses, and certain government employees who are paid via fees-per-service.
Business use means trips taken for work, but commuting to and from work is not deductible. For example, a photographer’s drive to her studio would not be deductible, but her drive from her studio to a client’s house during working hours would be. However, if the photographer had a studio in her house, then her drive from her home studio to a client’s house for work purposes would qualify as tax deductible.
How to Deduct Car Insurance on Taxes
Car insurance can be deducted by eligible taxpayers based on either mileage or actual cost. If you choose to deduct based on mileage, the official rate – $0.67 per mile in 2024 – incorporates all the expenses that go into driving, so insurance cannot be deducted separately. On the other hand, deducting based on actual expenses requires taxpayers to add up costs like insurance premiums, repairs, gas, tires, and registration fees.
Self-employed taxpayers can use Schedule C to deduct their vehicle expenses, whether using actual cost or mileage. Other eligible taxpayers can use Form 2106 for Employee Business Expenses.
Car Insurance Tax Deductibility Tips
- If a car is used exclusively for business, the entire amount of its actual cost can be deducted.
- If a car is driven for both business and personal reasons, the total cost can be prorated. For example, if the car is used for business half of the time, half of its actual cost can be deducted.
- If a taxpayer is deducting based on mileage, they should keep careful track of their work-related miles and can deduct only that amount.
Regardless of which type of deduction you choose, it’s important to keep careful records of business vehicle use. In addition, it’s usually best to calculate your deduction using both the actual value and mileage methods, so you can choose the method that gives you the highest tax savings. If you’re still unsure whether you can deduct your car insurance, visit the IRS website or talk to a tax expert.
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