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In What Cases Is Car Insurance Tax-Deductible?

Your car insurance premium may be tax-deductible.  Whether your car insurance is tax-deductible depends on the purpose for which you use your vehicle.  If you use your car for business purposes, your car insurance premium or a portion thereof is tax-deductible. However, there are a few exceptions.  If you do not use your car for business purposes, your auto insurance is not tax deductible.

What Qualifies as Business Purposes?

You do not qualify for a tax deduction simply based on using your car to commute to and from work.  You must drive the car as part of your job. Yet, the business purposes for which you use your car do not have to be connected to your primary job. Your car insurance is tax-deductible if you drive for a secondary job as well.

If you travel as part of your job, this does qualify as “for business purposes.”  For instance, if you often travel to visit clients this is a business purpose. Using your car to frequently pick up and transport supplies is another example of a business purpose. Another example of a business purpose is if you regularly travel to business events.

Moreover, if your job requires you to take a business trip, a small portion of your car insurance is tax-deductible. The proportional percentage of car insurance that covered that business trip is deductible. If, however, your employer reimburses you for car insurance, you cannot take a tax deduction as well.

You Use Your Car for Both Business and Personal Needs

Although you must drive your car for business purposes to deduct your car insurance, the law does not require that you only drive the car for business.  However, you cannot deduct the full cost of your car insurance. You can deduct your car insurance in accordance with the percentage of time you drive it for business. For instance, if you drive your car 50% for business and 50% for personal, you can deduct 50% of your car insurance expenses.

Determine the percentage of car insurance allocated to business purposes by identifying the number of miles you drove that year.  Then, identify the number of miles that you drove for business. (You probably want to keep a record of this throughout the year.) Divide the business miles by the total miles. Next, multiple the actual expense (i.e. the annual car insurance premium) by the percentage. This amount is the amount that you can deduct on your taxes.

What is Business-Use Car Insurance Policy? Do You Need One?

If you use your car for business purposes, you do not need a business-use car insurance policy to take a car insurance tax deduction. You do, however, need a business-use car insurance policy to be adequately covered by your car insurance. If you are in an accident while using your car for business purposes and you do not have a business-use policy, your insurance may not cover the damages. Thus, if you are using your car for business purposes, you would be remiss not to get the business use policy.

If you drive for Uber or Lyft, you may need to have a special insurance called rideshare insurance to protect you from the liabilities that may arise from the job. In some states, rideshare insurance is required. Even in states where it is optional, you may want to carry it to have full protection while earning additional income.

>>MORE: What Kind of Insurance Do You Need for Uber?

How Much Does Business-Use Car Insurance Policy Cost?

You will pay slightly more for this policy, but in the event of an accident, it will be well worth it. In our insurance quote analysis, the premium of a business-use car insurance policy is about 10% more expensive than that of a pleasure-use car insurance policy, keeping all other variables constant.

When You Cannot Take A Tax Deduction

Even if you use your car for business purposes, you cannot take a car insurance deduction if your employer reimburses you for the insurance expanse.  This is important to note if you drive regularly for business, unless you are self-employed, you are probably already being reimbursed for all your business driving related expenses.

You can deduct your car insurance expense on your taxes so long as you use the car for business purposes. You deduct the insurance for a multi-use car on your taxes in proportion to the percentage allocated to business purposes.  Additionally, you do not need to have a business use policy for the deduction, but it would be wise to have it.

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