How to Claim Your Business Car Insurance as a Tax Deduction
Your business is a dream you work hard for, so you do what you can to drive it forward. And that includes keeping up on all the ways you can save your business some money. Speaking of saving — did you know you can claim your business car insurance as a tax deduction? That’s right, if you can prove you use the vehicle for business, you can deduct vehicle-related costs on your taxes, and that can add up to money back in your hard-working hands!
American Family Insurance wants you to have access to all of the benefits of your vehicle, and we’re always here to help you when it comes to your vehicle insurance. Don’t forget to consult a tax expert to make sure your deductibles are filed to your best advantage.
In the meantime, let’s take a high-level look at how you can write off car insurance.
Is Car Insurance Tax Deductible?
Yes, car insurance can be a write off on taxes so long as you can prove you use it for business purposes. When filing your business taxes, you can choose either the standard mileage rate as your tax deduction (which is the total number of miles you drove for business in a year), or deduct the actual expenses your vehicle incurred for business use. It all comes down to which will give you the bigger deduction, so keep track of both your mileage and your vehicle business expenses (e.g. insurance, gas, tires, repairs, etc.).
With the mileage rate, you cannot claim lease payments, fuel and vehicle registration fees. Lease vehicles are treated a little differently — if the standard mileage rate is the preferred method, you’ll have to use that method for the entire lease period.
If you choose to deduct vehicle expenses, you’ll want to make sure you keep a detailed track of all your costs, including the car insurance you pay, so you can file them with your return.
What Is and Isn’t Considered a Business Expense?
In order to fully take advantage of the business car tax deduction, let’s find out what does and doesn’t count as a business expense.
Make sure you keep a detailed track of the following, since these do count as business use for a vehicle:
- Commercial auto insurance
- Rental or lease payments
- Gas and oil
- Maintenance and repairs
- Vehicle registration fees
- Garage rent
- Business-related parking fees when visiting a customer or client
- Vehicle depreciation
On the other hand, these do not count as a business expense to use towards a tax deduction:
- Personal use
- Commuting mileage
- Parking fees if you pay to park your car at your place of business
- Advertisements on your car
- Car pools
These are just a select few examples of what does and doesn’t count as a deductible for your vehicle used for business. To really get savvy about the criteria, head to IRS.gov for a comprehensive look at transportation write-offs.
Wait, Do I Need Commercial Car Insurance?
If you’re starting to question whether you even have the right insurance for your business vehicle, now is a good time to call up your agent. Do you use your vehicle for business? If so, you’ll definitely want to check out our commercial car coverage to make sure you’re properly covered from the unexpected. If you’re driving a vehicle for business and you only have a personal auto policy, you’ll want to transfer that to a commercial policy ASAP since your personal insurance won’t cover you if you get in an accident when driving for business use.
Learn more about commercial vs personal auto insurance.
Getting Your Claim Approved Starts with Tracking Your Vehicle Expenses
The fastest route to getting your claim approved begins with diligent tracking of vehicle expenses and mileage. A systemized record will help maintain a tangible log of your mileage, receipts, hourly usage, etc., so when it comes time to file your taxes you can hand over an accurate account of all your expenses.
There are a number of ways you can keep track of your miles and expenses — from an in-depth spreadsheet, smartphone apps, to a simple notebook. Regardless of how you choose to keep track, you’ll want to record the following details every trip you take when using your vehicle for business purposes:
- Miles per trip
- Expenses (gas, oil, tolls, parking, maintenance, etc.)
- Keep all business receipts
- Destination or purpose
Even if your vehicle is used for business 100% of the time (e.g. if it’s a delivery truck, utility truck, or dump truck) and you never use it for personal use, you still have to keep a mileage log.
And, keep in mind, if you file a return using the actual expenses deduction, you won’t be able to switch to the mileage deduction until you sell or trade your vehicle. But, if you start with mileage in the first year you use the vehicle for business, you’re able to file the return using the actual expenses any year thereafter that in doing so would get you a larger deduction.
Now that you know that your business car insurance is tax deductible, make sure you have the right coverage! Explore our commercial auto insurance options today, and remember — your American Family Insurance agent is ready to answer your questions and help you find the protection your business dreams deserve.
Related Topics: Business Insurance