Is Car Insurance Tax Deductible?
Premiums paid for auto insurance can be tax deductible, but this generally applies only if the policy covered a car or truck that was used for business purposes. Auto insurance for personal vehicle use typically cannot be deducted from income taxes.
According to a tax professional we contacted, individuals who are filing personal income on a 1040EZ cannot deduct personal auto insurance expenses from their income tax liability.
He also went on to explain that employees of companies who use their own cars as a part of their work can usually write off the cost of insuring those autos while used for work.
Individuals who are self-employed and use their vehicles for business can usually do the same, but in both cases the individual would need to complete and file the appropriate tax forms.
Tax-Deductible, Job-Related Auto Insurance Expenses
Using a vehicle for work can lead to tax deductions, but you should understand that those deductions only apply to vehicle coverage for the portion of time you are using your car for work.
So if you are an employee of a company and make your car available to your employer, you may be able to write off a percentage of the premium equal to the percentage of time you used it for work.
For example, if you work for a flower shop and use your own car to deliver flowers to customers, you may write off that percentage of time the vehicle policy was dedicated to covering work-related accidents. However, when the car is being used outside of work hours to take the kids to school, run personal errands, etc., that percentage of the policy will be your own expense and will not be deductible.
So if your car is used 8 hours a day for work purposes, you should be able write off around one third, or 33 percent, of the premium.
In order to claim this deduction, you would need to input your expenses into line 21 of Schedule A (Form 1040) or line 7 of Schedule A (Form 1040NR) and file a 2106 Form. Consult a tax professional to see which form is right for you.
Self-employed individuals who use their cars for work may also be able to write off coverage costs by inputting the expenses into Schedule C of their 1040 Form.
However, if you own the company and your company owns a car that is solely used for work, those policy costs can be written off, but the tax deduction would be taken from the company’s income tax liability when that income is reported.
There are a lot of unique situations out there, though, so these tax solutions won't apply to everyone. Auto insurance policyholders should consult a tax professional before deducting these expenses from their taxes to ensure that the costs are indeed deductible.