Have you ever thought about writing off car insurance as an expense on your taxes? It's possible under certain conditions. Here's what you need to know about how your car insurance can be itemized as an expense when you do your taxes.
If you are self-employed, car insurance is one of several auto-related items you can deduct. Other deductible items include lease payments, depreciation, registration fees, and any type of car repairs. Necessary products you buy for your cars, such as gas, oil, and tires, are also deductible. Even tolls and parking fees can be deducted.
However, you don't necessarily have to be self-employed to be eligible to write off car insurance expenses on your taxes. Others eligible for this deduction include certain armed forces reservists, performing artists, and fee-based state or local government officials.
You have a choice in how you report unreimbursed vehicle expenses. The standard mileage method allows you to deduct $0.56 per mile for your 2021 tax return. Nonetheless, using this method prohibits you from deducting auto insurance payments separately. You'll still be allowed to deduct tolls and parking fees. The other option is to report actual vehicle expenses, including car insurance premiums, auto repair work, and other costs.
At one time, employees could deduct mileage and other car expenses that their employer did not reimburse. However, the Tax Cut and Jobs Act (TCJA) of 2017 suspended this deduction for employee business expenses. It still allows small business owners who file Schedule C or F to deduct mileage. Others who are still allowed this deduction are individuals who use their cars for volunteer work or when you go to a medical appointment.
One of the big questions about self-employment and tax deductions is: what counts as business travel? Can you deduct the cost of your regular commute to and from work? No, but you can count the business travel you do once you arrive at work or the site of your first destination. You can count product or document deliveries, trips to visit clients, or other businesses to purchase supplies.
You will not be able to claim the standard mileage rate option of $0.56 per mile under certain conditions. Using a fleet of 5 or more vehicles at one time eliminates this option. You won't be able to use the standard option if you claim a depreciation deduction for the vehicle using a different method than straight-line depreciation.
If you are self-employed, you'll need to report your mileage on Schedule C. You'll also need to answer some questions about your vehicle. People who use their vehicles strictly for business won't have to prorate their deduction. Other individuals who don't use Schedule C need to use Form 2106.
At Reata Insurance Group, we can help you understand how your insurance relates to taxes. Contact our experts today to learn more about customized auto insurance for your needs!
