No matter where you live in the U.S., your state has some sort of minimum car insurance requirement, which means millions of car-owning Americans pay for car insurance.
If you're one of them, you might be wondering whether or not you can claim those car insurance payments as a tax deduction this tax season. The answer is possibly — it really depends on how you use your car. Here’s how to tell if your car insurance payments can be claimed as a tax deduction.
What is a tax deduction?
A tax deduction is an amount of money you subtract from your yearly taxable income when you file your taxes. But not everything can qualify for a deduction — there’s a wide variety of expenses that can be claimed as tax deductions, but when it comes to car insurance, claiming even part of your premiums as a deduction can be tricky.
When is your car insurance tax deductible?
Your car insurance may be tax deductible if you use your car for work, like making deliveries in your personal vehicle, or traveling to meet clients. But remember that commuting to and from work doesn't count as a business expense.
Is car insurance tax deductible if you’re self-employed or a freelancer?
If you work for yourself and you use your car for your business or work, it’s likely that you’ll be able to claim at least some of your car insurance premiums as a tax deduction. And that’s not all — in addition to car insurance, there are other vehicle expenses you might be able to deduct as well, assuming you use your car for your work. Other expenses you may be able to deduct include spending on:
Is car insurance tax deductible if you consistently use your car for work-related purposes?
If you’re a W2 employee in a handful of qualifying roles — like an Armed Forces reservist or a qualified performing artist — and you use your personal vehicle for any work-related purposes, or if you have to drive for work and don’t already get reimbursed by your employer, you may be able to deduct at least some of your premiums.
Work-related uses for your personal car might include any extra trips to pick up supplies or attend meetings, or driving to visit clients or participate in a work-related event, like a conference. You can claim many of the same auto-related expenses as car-owners who are self-employed, including car insurance costs, provided you document how and when you used your car for business purposes.
But if you got a speeding ticket while rushing to a work function, that’s a no-go, traffic ticket fines are never tax deductible.
Is car insurance tax deductible if your car is for personal use only?
If your car is mostly for personal use, you usually can’t deduct your car insurance premiums from your taxable income. That means that, even if you drive to and from work, if your car stays parked all day while you’re working, your car insurance isn’t tax deductible.
Preparing for tax season
Just remember the golden rule of getting ready for tax season — keep great records. Consult a tax professional if you have specific questions about deducting your car insurance or other auto-related expenses from your taxable income.
Saving money on your car insurance
Claiming a portion of your car insurance costs on your taxes is one way to save money, but there are other ways to save money on your car insurance that are more effective — and don't complicate your taxes.
Compare quotes: Car insurance rates vary by company, which means the same driver could save hundreds of dollars or more by comparing quotes between multiple insurance companies.
Take advantage of discounts: Insurance companies offer a variety of discounts, including bundling discounts, employer discounts, good student discounts, safe driver discounts, and more, so make sure you’re getting the savings you deserve.
Keep your driving record clean: Avoiding accidents and moving violations is the best way to keep your car insurance costs low. If you already have an accident or claim on your record, staying safe on the road and avoiding future mistakes will help your rates go back to normal faster.
