During tax season, you want to consider every possible tax deduction to make the numbers work in your favor. This is especially the case if you’re not getting a tax refund and owe money to Uncle Sam. After looking at all the potential deductions and your expenses, you might wonder “Can I write off car insurance?” In certain cases, car insurance is tax-deductible. However, certain conditions must be met to qualify.
Is car insurance tax-deductible?
Car insurance is tax-deductible in some instances, such as for self-employed individuals and business owners who use a vehicle to run a business.
But is car insurance tax-deductible for self-employed people only, or do employees qualify as well?
Unfortunately, deducting car insurance as an employee is no longer an option. If you do business in your car for your employer and don’t get reimbursed, still, not an option.
This new change was ushered in with the Tax Cuts and Jobs Act (TCJA) which eliminated the ability for employees to itemize certain deductions, like using their car for work. Most of the tax provisions set forth as part of the TCJA are in effect until 2025.
Sorry to be the bearer of bad news. So basically, car insurance being tax-deductible is an option for business owners and in most cases, not employees. However, the Internal Revenue Service (IRS) does outline some notable exceptions for who can deduct “unreimbursed employee travel expenses.” According to the IRS website, these taxpayers include:
- Armed Forces reservists
- Qualified performing artists
- Fee-basis state or local government officials
Writing off car insurance on your taxes
If you’re a business owner and are curious “Is car insurance tax-deductible for self-employed people?” now you know that yes, it’s possible.
So if you’re self-employed and use your car for business purposes, you might just be able to deduct a portion of your insurance premium.
For example, if you’re a contractor and you use your truck to carry supplies to and from job sites, you can likely write off your full insurance premium, plus the cost of other expenses like gas. The catch here is that your vehicle has to be used for explicit business tasks primarily; using it to commute to and from the office isn’t enough to justify a business expense.
But when thinking about deducting car insurance, there’s something important to consider. According to the IRS, there are two ways that self-employed people can tally up their car expenses:
- Vehicle expenses (including car insurance, gas, depreciation, registration fees, etc.)
- The Standard Mileage Rate, is used to deduct a fixed amount per mile when deducting vehicle expenses. In 2022, that rate is 58.5 cents and in 2021 it was 56 cents.
You typically need to use one of these ways to deduct vehicle expenses from your taxes. So if you want to deduct car insurance directly, it would need to be part of the actual vehicle expenses.
However, opting for the Standard Mileage Rate may be more beneficial in some cases. This rate is set by the IRS each year and bakes in many of the costs into it. It’s best to calculate both ways to see which option offers the most benefits. It’s always best to discuss specific tax questions with a professional like a Certified Public Accountant (CPA).
Splitting personal vs. business use
If you use your vehicle for both personal and business use, then you may be able to write off a portion of your insurance.
So if you’re using your car for both business and pleasure (think: Lyft or Uber drivers, for example), you can only write off the cost of your insurance up to the proportion of time it’s used for business.
Let’s say you’re using it to work as a rideshare driver 25% of the time, and driving around town for personal reasons the other 75% of the time. In this case, you can only list 25% of the insurance premium cost on your taxes, and that would be if you opt to deduct your actual expenses versus the standard mileage rate.
When you can’t deduct car insurance
“Can I write off car insurance?” is a common question with an answer that has changed over the years with new tax laws. The Tax Cuts and Jobs Act changed many of these rules over the past several years.
It’s no longer possible to deduct car insurance or mileage as an employee. It’s also not possible to deduct a car insurance deductible in the case of theft. So if you were hoping to deduct car insurance for personal use or as an employee, it’s currently not an option.
The bottom line
Figuring out if car insurance is deductible can depend on whether you have a full-time or part-time business and how much you use your vehicle for that purpose. It also depends on the tax laws, which can change year to year. If you do run an eligible business and can write off car insurance be sure to assess whether deducting all expenses or using the standard mileage rate works best for you. If you don’t drive that many miles and want to lower car insurance costs, consider pay-per-mile coverage. Rethink your auto insurance coverage and only pay for the miles you drive, plus a low base rate. Grab a free quote to see how much you could save.
Melanie Lockert is a freelance writer, podcast host of the Mental Health and Wealth show, and author of Dear Debt. She’s a cat mom to two jazzy cats, Miles and Thelonious, an amateur boxer, music lover, and needs coffee to function.