Car insurance is tax-deductible if you are self-employed and you use the car for business. Your daily commute to work is not considered business use. You must drive your car to other business-related locations for your car insurance premium to be tax-deductible. It doesn’t matter if you only drive a mile at a time to meet a client, your accountant, a vendor, etc. – as long as you use your car for business purposes and accurately log your mileage when you do.
To deduct your car insurance premium, you will have to file your business expenses (Schedule C) using the “actual vehicle expenses” method. That means itemizing the costs associated with using your car for business instead of taking a standard mileage deduction (Schedule C, line 9). The standard mileage deduction in 2019 is $0.58 per mile. No matter which deduction you plan to take, keep track of your total annual mileage and the total number of miles driven for business. You’ll need that information for either method.
How much of my car insurance premium can I deduct on my taxes?
To use the actual expenses method, you have to calculate your percentage of business use. Doing the math for your percentage of business use is easy: simply divide the number of business miles by your annual mileage. Here’s an example: let’s say you drove 15,000 miles last year, and 8,000 of those miles were for business. That means you used the vehicle for business a little over 53% of the time (8,000 / 15,000 = .533). As a result, you can deduct a bit more than 53% of your car insurance premium.
Accurately tracking your mileage is critical if you want your car insurance to be tax deductible. Otherwise, you won’t be able to calculate the percentage of business use for your car, which tells you how much of your car insurance premium you can claim. If you’re audited, the IRS will want to see a log that shows the dates, destinations, reasons for travel, and starting/ending odometer mileage for each trip.
To maximize your deduction for business expenses, calculate all eligible costs related to operating your vehicle—not just car insurance. You can also deduct gas, repairs and maintenance, parking fees, and other vehicle expenses using the same percentage of business use method. You should also make sure you’ve accounted for all business expenses not related to your car, like advertising, office expenses and supplies, employee wages and benefits, and more.
Once you have the grand total of what you spent running your business for the year, you can decide if you want to take a standard personal deduction or itemize using a Schedule A form. You get to deduct your business expenses (Schedule C) no matter what, but you also get a standard or itemized deduction personally on Schedule A.
Are car insurance deductibles tax-deductible for self-employed drivers?
Premiums aren’t the only costs associated with car insurance, but your deductible is not usually tax-deductible. Your car insurance deductible—which you pay when making a claim—is considered a personal expense/loss and does not qualify for a tax deduction using the actual expenses method. The only exception to this rule is if you experienced property loss in a federally-mandated disaster area as a direct result of the disaster.
WalletHub Answers is a free service that helps consumers access financial information. Information on WalletHub Answers is provided “as is” and should not be considered financial, legal or investment advice. WalletHub is not a financial advisor, law firm, “lawyer referral service,” or a substitute for a financial advisor, attorney, or law firm. You may want to hire a professional before making any decision. WalletHub does not endorse any particular contributors and cannot guarantee the quality or reliability of any information posted. The helpfulness of a financial advisor's answer is not indicative of future advisor performance.