Is Car Insurance Tax Deductible?
A common question folks ask is if “car insurance is tax deductible?” The answer is simple; yes and no. Of course, it really depends on the type of insurance you’re referring to. When it comes to personal insurance, homeowners insurance, and auto insurance, it’s a resounding NO!
Unfortunately, we cannot take tax deductions for premiums paid on our personal car insurance. I wish I had a textbook explanation for this question, but I don’t. The answer probably lies somewhere in the fact that we don’t pay taxes on car insurance in the first place.
Your insurer, however, does pay tax on the premiums because it is a form of business income for them. And we all know the cost of the tax they pay is most certainly calculated somewhere in our premium payments.
All that said, car insurance for business use is tax deductible. If you own a company and insure your car(s) through it, or even if you use your own personal vehicle for your job, you are entitled to tax deductions.
Basically, you have two options:
The first option is to deduct actual expenses which include: oil, gas, tolls, depreciation, garage and parking fees, repairs, licenses and even tires. If you choose this option, you’re able to deduct your car insurance premium as well.
The second option is to deduct the standard rate, which is simply a dollar amount based on the mileage you rack up for work. The second option is probably the most common, as it is the easiest to keep track of.
Normally, this is where I would tell you to contact your independent insurance agent or direct insurer if you have additional questions on whether car insurance is tax deductible in your particular situation.
However, this time I am going to refer you to the taxman, or the IRS. While the odds are your agent can help you, they will most likely decline to do so as they are not licensed to offer tax advice and therefore not “insured” to give it.
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