As a responsible tax-paying citizen, you want to keep track of your expenses throughout the year. This is especially important if you are a business owner. So many of your expenses can be considered tax-deductible, such as office supplies, building tools, and your business vehicle. But do you know if your auto insurance is one of those deductions?
When is car insurance tax deductible?
A portion of your auto insurance can be tax deductible if you have a vehicle that you use specifically for business. For example, if you own a landscaping business and you use your vehicle to haul your work tools to do yard work at your client’s house, then you may be able to claim your commercial vehicle insurance as a tax deduction. This is considered ”business use”.
If you are a U.S. armed forces reservist, and you drive your vehicle up to 100 miles from your home address to your military-related destination, you can also write off your auto insurance as a tax deduction. There are many other careers where your auto insurance premium can qualify as tax deductible. It’s important that you do some research or contact your CPA if you have questions about your specific career and tax exemptions.
It is a common misconception that driving your personal vehicle to and from work every day is considered “business use”. It is not. Your insurance premium cannot be claimed as a tax deduction for daily commutes to work in your vehicle.
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What insurance tax deduction methods are used for expenses and mileage?
Per the IRS, there are two primary methods that can be used to calculate the cost of using your vehicle for commercial purposes. The Actual Expenses Method is perhaps the more well known of the two, but it requires additional work for your employees or yourself. If you choose to use this method, you would be responsible for keeping track of all the money spent on your vehicle for business operations within that tax year. This could include your receipts for any maintenance performed, gasoline, parking fees, and even your insurance premiums and registration fees. These amounts would be tallied up and then multiplied by the percentage of vehicle use that is commercial.
The second way to calculate your expenses is called the Standard Mileage Rate Method. This is a slightly less intense way to calculate costs, and entails calculating the miles you drove for business reasons in that tax year, and then multiply that number by the “standard mileage rate”. According to the agency website, the rate for 2023 is 65.5 cents per mile. The rates are subject to change yearly, and they may even vary depending on the type of business you own.
It’s always best to consult your CPA or other tax preparer about your specific situation and any questions you may have. You can also visit the IRS website to learn more about business deductions. Don’t lose out on a tax deduction because you didn’t ask about it!
Disclaimer:
This material is for general informational purposes only. Kemper and its companies do not provide tax, legal or accounting advice and this information is not intended, nor should it be relied on for tax, legal or accounting advice. You should consult your own advisors for such advice prior to making any decisions concerning your business and corresponding tax, legal and accounting obligations.