Yes. Auto insurance premiums are tax-deductible. However, the issue of auto insurance premiums is not black and white, rather, it is highly dependent on the function of the car.
The automotive industry is constantly growing, with the functionality of vehicles growing with it. Cars are no longer just for personal use. Some are used for business as well. Different functions of the car call for different approaches to auto insurance taxes.
Therefore, you have to consult with the auto insurance company to determine how tax deductibles apply to you.
Who Can Deduct Auto Insurance Premiums?
The self-employed, people in the armed forces going far from home, and some artists are eligible for an auto insurance premium tax-deductible.
For self-employed people, auto insurance premium tax-deductibles are especially relevant when the car owner uses them for business purposes. Some people use their cars for services like Uber or Lyft.
In cases where the car is used for business purposes only, you can deduct the entire car insurance premium as tax-deductible.
This approach can work in two ways whereby a car owner can qualify for tax-deductibility if their car is used for business fully. In this case, you can deduct your auto insurance premiums since the premiums are considered expenses.
The second approach applies when a car owner uses a car partly for business and partly for personal use. Part of their auto insurance premium qualifies as tax-deductible. This requires that you only deduct the amount in insurance premiums used for business.
You, therefore, have to calculate the expenses incurred while doing business, and nothing more. These expenses include auto insurance taxes as well as other maintenance costs.
When Are Auto Insurance Premiums Considered Expenses?
When using the actual expenses method, you can consider your auto insurance premiums as expenses. In this method, you deduct any expenses incurred by your vehicle while in business.
The actual expenses method accommodates insurance premiums, any car repair costs you incur, parking fees, Gas, and tires.
One is only eligible for an auto insurance premium tax reduction if their insurance expenses are not reimbursed in any way. Therefore, you can only deduct tax for business expenses you have to pay out of pocket.
Any form of compensation for the insurance premium deems you ineligible to apply the tax deduction.
How Do You Deduct Auto Insurance Premium?
How you deduct your auto insurance premiums as tax deductibles solely depend on how you use your car. The extent to which you use it for business without any reimbursement is the exact extent to which you can apply a tax deduction.
If three-quarters of the time you use your car for personal use and only use it for business in the remaining quarter of the time, you can only apply a 25% deductible on your tax.
After having the calculations in order, you only have to fill, add information, and submit the relevant tax forms depending on whether or not you are self-employed.