To get a car insurance tax deduction, you need to bear in mind a few tips. As a general guideline, if you’re using the vehicle for your personal use you can’t take advantage of a tax deduction on personal car insurance. However, if you use the vehicle for business purposes, the insurance premium you pay qualifies for a tax deduction. Apart from taking a tax deduction for insurance premiums, you could also calculate the cost of using your car for business purposes and deduct this cost when filing your returns. However, you need to go about it in the right manner and must keep in mind the tips mentioned below.
- You can take a tax deduction in two ways. You could either calculate the actual expenses incurred for using your car for business purposes or you could select the standard deduction rate put forth by the IRS.
- If you choose to calculate the actual expenses incurred, you will have to maintain records and receipts to prove that you have made a valid tax deduction. Expenses on licenses, registration fees, gas, and oil, parking fees, tolls and car insurance can be deducted if the vehicle is used for business purposes. Moreover, you could also calculate vehicle’s depreciation and add it to your deductible amount when filing your returns.
- As a general guideline, if you’re self employed, you could deduct a certain percentage of the interest you’re paying on your auto loan, if you use the vehicle (even partially) for business purposes. However, this deduction doesn’t hold well if you’re an employee of any given organization.
- As an employee you may be eligible for tax deductions if you have used your personal vehicle for business, on an occasional basis. However, you do have to provide sufficient proof to support your deductions.
- If you’re taking a car insurance tax deduction for the first time, you should consider taking the assistance of a taxation agent to understand how to file your returns.
- Calculate the cost of operating your vehicle for business use and compare this amount with the standard rate set by the IRS. Tally these amounts to find out which option gives you a higher deduction.
- If you wish to take car insurance tax deductions based on actual expenses, you should make sure that you provide proof of your expenses so that your claim is not denied.
It’s important to keep these facts in mind when taking income tax deductions. Although there are several rules that govern tax deductions, you should not be discouraged by the complexity of the tax filing process. Make sure you maintain proper receipts and records of your car insurance costs, vehicle registration fees along with fuel expenses and keep these documents handy when filing your returns. If you’re an owner of a small business, you could also work with your accountant to determine how to lower your tax bill.