Can I deduct auto insurance as a business expense?
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UPDATED: Apr 25, 2022
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As a business owner, independent contractor, or even salaried employee, you want to reduce business-related expenses every way you can.
You may be shopping for auto insurance rates today using a FREE comparison tool online. These tools allow you to compare multiple insurance rates online simply by entering your ZIP code.
It may have crossed your mind while getting auto insurance quotes that this business expense may be tax deductible.
The fact is that auto insurance, as with other business-related expenses, may indeed be tax deductible. However, in some cases it is not deductible or not fully deductible.
When Auto Insurance is Fully Deductible
In some businesses, a vehicle is owned by the business and is used only for business purposes. For example, a plumber may own a van that is stocked with plumbing equipment, tools and supplies.
The plumber may use this van for business use only, and may have access to a second vehicle that he or she uses for personal travel.
Another example is if a cleaning company has a fleet of business vehicles that its cleaning staff uses when traveling to the homes and businesses of its clients.
If your vehicle is used entirely for business use, then the full amount of money you pay for an auto insurance premium may be deductible.
When An Auto Insurance Deductible May Be Limited
While some businesses use a vehicle entirely for business purposes, others may use a vehicle for both business and personal purposes.
For example, a real estate agent may use the same vehicle to drive clients around in while showing homes as he or she uses for running personal errands on the weekend.
If a vehicle is used for both business and personal reasons alike, a portion of the auto insurance may be deductible.
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When Auto Insurance May Not Be Deducted
If a vehicle is used for both business and personal purposes, the vehicle owner should keep a mileage log of miles traveled for business purposes. The owner should also keep track of other vehicle-related expenses for the year.
These expenses may include:
- Fuel costs
- Repair costs
- Regular maintenance costs such as for oil changes and tire rotations
- Auto insurance premiums
- Vehicle registration fees
At the end of the year, the owner will have the choice of deducting a portion of vehicle-related expenses based on one of two methods.
The portion of expenses deducted is based on the percentage of miles driven for business versus for personal purposes.
The owner can then decide if a greater deduction is available when actual expenses are calculated or when the standard mileage deduction is used.
Those who need guidance in making this determination should seek the professional advice of an accountant or tax specialist.
Shopping for Rate Quotes
While some or all of your auto insurance premium may be deductible, no vehicle owner wants to pay more than necessary for their car insurance.
Shopping for rate quotes is a great way for you to identify ways to save on your insurance cost. You may first want to use a rate comparison tool online.
These tools require you to simply enter your ZIP code into the site, then you will receive numerous rate estimates to compare against each other.
This information can be used to help you determine which auto insurance companies you should contact for a full rate quote. After all, as a busy professional, you do not have time to contact each and every insurance company for a full rate quote.
Determining Your Coverage Requirements
One of the things you will need to know before getting a full rate quote is how much coverage you need to purchase. Most states require drivers to maintain a minimum amount of liability coverage.
If your vehicle has an auto loan on it, the auto lender may require you to maintain a minimum amount of collision coverage as well.
If your vehicle will be transporting business-related equipment, goods or other expensive items on a regular basis, you may benefit from purchasing additional coverage to protect yourself from financial loss due to theft, vandalism and more of the contents inside the car.
Consider your needs before contacting an insurance company for a full quote.
How Your Deductible Can Be Used To Your Advantage
When you do get a full rate quote from car insurance companies, the car insurance companies may ask you what deductible amount you want on your policy. The deductible is the out-of-pocket expense you will pay each time you file a claim. This is not a regular expense as your premium is.
Further, by requesting a higher deductible, your premium is reduced. Because of this, it does make sense to request a higher deductible.
If an insurance company does not ask for your deductible preference, speak up and voice your preference. Some auto insurance companies will assume you want a $500 deductible, which is what most auto insurance policies are priced with.
However, you may choose a $750, $1,000 or higher deductible for greater premium savings.
While your auto insurance premium may be partially or fully deductible, you do not want to pay more than necessary for this expense. You can keep business-related costs lower by shopping for rate quotes today.
You simply enter your ZIP code into the website, and you will quickly receive numerous online auto insurance rate quotes back to compare and review.