Are my car insurance premiums tax deductible?

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Here's what you need to know...

The tax deduction of car insurance premiums is based on the IRS’ tax code. If you are a business owner, make sure your rates are competitive.

The information listed here is designed to give a broad overview of when car insurance premiums may be tax deductible.

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Exceptions of Premiums

Unless you qualify for certain tax deductions, you cannot deduct car insurance premiums. There a few exceptions when it comes to deducting your premiums.

Those exceptions include:

A tax accountant would be the best source for determining if you can deduct car insurance premiums.

Why are my car insurance premiums not deductible?

The Internal Revenue Service tax code does not allow tax deductions for everyday living expenses like food or utility bills for individuals.

A business has expenses they pay to generate revenue and those expenses can be tax deductible.

Some kinds of employees have expenses they pay that generate revenue and those expenses can be tax deductible.

Some individuals have certain categories of expenses they pay that can be deductible and those expenses do not include everyday living expenses.

That makes it very important to compare car insurance rates so you can save on your car insurance costs.

If You Have an Incorporated Business

Car insurance premiums for an incorporated business are tax deductible for the business use of a vehicle.

Car insurance premiums can be deducted based on the actual dollar amount of the premium if the business selects to include actual expenses for the use of the vehicle.

An alternative would be for the corporation to deduct a set amount of money per mile that has been driven called a standard mileage rate.

The Standard mileage rate would include:

  • Cost of the vehicle
  • Fuel
  • Maintenance
  • Insurance

The deduction taken is the method that allows the largest deduction.

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If You Run Your Own Business

A business owner can deduct car insurance premiums for the business use of a vehicle. Car insurance premiums can be deducted by a business selecting between two methods.

A business can deduct the actual cost of car insurance premium incurred for all business use of a vehicle.

A simpler method many businesses use is deducting a standard mileage rate for the business use of the vehicle. The standard mileage rate deduction is based on the business miles.

That expense represents the cost of operating the vehicle for each mile that is driven.

A business can enhance profits when expenses are reduced so comparison shopping for car insurance can be very beneficial.

If You Have Employee Business Expenses

Certain employees will have expenses that their employer will reimburse them for.

One kind of reimbursed expenses would be the cost of using their own vehicle for business purposes that are not fully reimbursed by the employer.

An employee driving their own vehicle for business can deduct the standard mileage rate for each mile driven for business purposes.

A standard mileage rate is announced by the Internal Revenue Service each year. That rate is used to calculate vehicle expense.

The total expense represents the cost of operating the vehicle based on mileage driven for business.

Itemized Deductions

The Internal Revenue Service allows you the option of taking a standard deduction or an itemized deduction. Once you take the standard deduction you are not able to itemize the cost of your car insurance premium.

When you itemize deductions there are certain categories of deductions that allow a deduction of part of your car insurance premium.

Those categories would include:

  • Medical Expenses
  • Charitable Contributions
  • Moving Expenses

Not all itemized deductions will reduce your tax bill.

There are limits and thresholds to determine how much your itemized deductions would be. A tax consultant can assist to see what the deduction may be.

– Medical Expenses

The Internal Revenue Service allows individuals that itemize deductions to include medical expenses. The medical expenses would include medical and dental expenses.

Travel expenses for medical care are based on a standard mileage rate and the number miles driven to receive medical care.

The Internal Revenue Service allows a dollar amount per mile driven to receive medical care.

– Charitable Contributions

The Internal Revenue Service allows an individual that itemizes their deductions to include charitable contributions.

If you itemize charitable contributions you can include a deduction for miles you drive for the charities.

The types of charitable mileage would include things like delivering hot food to the elderly or to drive individuals to their medical appointments.

The Internal Revenue Service allows a deduction for the number of these miles driven.

– Moving Expenses

Itemized deductions for moving expenses may allow a mileage deduction for expenses related to moving for a new job or relocation over 53 miles away from your prior home.

You may be able to deduct a mileage allowance for the number of miles you drive that are directly related to your moving expenses.

Car insurance premiums are not tax deductible unless you meet certain criteria.

Those criteria include:

  • Business owners
  • Employees with business expenses
  • Certain types of itemized deductions

To determine if you meet one of the criteria you can consult with a tax accountant. To save money you should compare car insurance costs of different companies.

If you own a business there may be additional car insurance coverage to include so shopping for the best rates can save money.

Just enter your zip code into our FREE comparison tool below to get started!

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