UPDATED: MAY 05, 2023 | 2 MIN READ
As a driver, you may wonder if you can deduct your car insurance premiums from your taxes. While car insurance can be a significant expense, it’s important to understand the tax implications to maximize your deductions and save money. This article will explore whether car insurance is tax-deductible and under what circumstances.
When is your car insurance tax deductible?
Not every car owner can deduct car insurance from their income taxes. You can deduct your car insurance on taxes only if you use your car for business and not personal use.
You must be self-employed or a freelancer to deduct car insurance from your taxes. For example, if you use your car to pick up and deliver food or if you take passengers as a rideshare driver. You can also deduct your car insurance in certain cases, such as if you’re part of the armed forces traveling 100 miles away from home or a fee-basis government official.
How to deduct your car insurance premiums on your taxes
When you file your 1040 (Schedule C) form, you can deduct your car insurance from your taxes in one of two ways. The first is the standard mileage deduction, which uses a formula from the IRS. The other deduction applies to all of your business-use expenses for the car.
Use the standard deduction
The standard deduction lets you take your mileage for business purposes and multiply it towards two rates. For January 1, 2022, to June 30, 2022, the rate is 58.5 cents per mile, and for July 1, 2022, to December 1, 2022, the rate is 62.5 cents per mile.
The standard deduction rate changes each year. If you choose the standard deduction, you must use the rate for the year you file taxes.
Calculate your own driving expenses
If you prefer to calculate the actual expenses for your car, you can add them up and deduct the amount. Actual expenses that are tax deductible are only for your car when it’s used for business.
These expenses include:
- Car insurance
- Vehicle depreciation
- Car repairs
- Oil changes
- Registration fees
You must calculate the percentage of the expenses that apply to the business use of your vehicle. You do this by taking those expenses and multiplying them by 50%. To have the IRS accept your deduction, have receipts, mileage logs, and other documentation on hand.
What’s business use insurance, and why is it tax deductible?
Companies have business use insurance as a classification for when their employees use a company or personal vehicle for a business purpose. Business purposes include meeting clients, transporting materials, or traveling for work.
The classification can increase the cost of car insurance, so drivers look for tax deductions when possible. You can deduct the portion of the business use insurance that applies to your car’s total business use.
What if you use your car for both personal and business uses?
You can deduct the business expenses if you use your car for personal and business use, such as a food delivery or rideshare driver. This means you’re able to deduct a portion of your car insurance but not the entire amount.
Per the IRS guidelines, anything related to the personal use of your car, such as for pleasure, doesn’t apply. The IRS also requires substantial records to prove the business use of your car.
If you’re a rideshare driver, can you deduct your car insurance from your taxes?
Drivers for rideshare services like Uber and Lyft can deduct their insurance premiums for their taxes. You must keep clear mileage records for personal and business use and only deduct business-related car expenses. You may also opt to take the standard mileage deduction.
If you’re a delivery driver, can you deduct your car insurance from your taxes?
Drivers for food delivery services such as GrubHub, DoorDash, and UberEats can sometimes deduct their car insurance from their taxes.
These drivers are known as independent contractors who receive 1099 forms.
You can only deduct a portion of your car insurance as it applies to your work as a delivery driver. Like rideshare drivers, you may opt for the standard deduction instead.
Can employees deduct car insurance premiums for work travel?
You can’t deduct your car insurance premium if you commute to work as a regular employee. Your employer may reimburse you for the cost of picking up materials or meeting clients, but your car insurance premium isn’t deductible from your taxes.
What vehicle expenses are tax deductible?
If you qualify for deductions of car-related expenses, you can deduct the costs of insurance, gas, parking fees, garage rent, tolls, and registration fees.
Can I claim my insurance premiums on my taxes?
No, if you use your car for personal use only. You can claim your insurance premiums on your taxes if you use your car for business, such as meeting clients, picking up materials, or another business purpose.
Can I write off gas and mileage?
Yes. You can choose a car expense deduction for gas and mileage if you’re eligible for car-related deductions. However, you can’t deduct your car expenses if you opt for the standard mileage deduction.
Is it better to write off gas or mileage?
If you drive a lot for work, tracking and writing off your mileage may yield higher savings than writing off actual vehicle expenses. The best choice for your taxes can depend on how much you drive.