If you’re like most people, you are always looking for ways to save money. And even though car insurance is a fact of life, an expense that you can’t avoid if you own a car, there are ways to save on your premiums. Self-employed people in particular may be able to take advantage of their status. In some cases, car insurance is tax deductible for self-employed people. In this article, we’ll discuss how this can work.
Car Insurance and Taxes
The tax code can be complicated, especially if you are self-employed. It’s important that you talk to a tax professional before you take a deduction for your car insurance, because there are rules that could lead to you owing back taxes, along with the penalties and interest that go along with it, if you take a deduction by mistake.
Generally, you might be eligible for a tax deduction using your car insurance premium if you drive your vehicle for your business. There are rules, however, that must be followed depending on your particular situation.
Schedule C – Profit or Loss from Business
If you are self-employed and file a Schedule C tax form, you will most likely be deducting your car insurance premiums for business vehicles. Schedule C is used to report self-employed business income and expenses and is used by many small business owners.
There are two ways to claim your deductions on Schedule C when it comes to your vehicle. If you choose the standard mileage option, which gives you a standard payment per mile, you cannot additionally deduct your car insurance premiums.
However, if you use the actual cost method on Schedule C, you can deduct specific costs related to your vehicle, including depreciation, gas, maintenance, license fees and your auto insurance premiums.
Form 2106 – Employee Business Expenses
Form 2106 had a major change for the 2018 tax code. So, if you are an employee and have been using Form 2106 to deduct your business-related car insurance premiums, this is no longer an option. The argument from the administration is that the standard deduction has increased to offset the loss of Form 2106 deductions.
No Reimbursements Allowed
The one caveat to deducting your car insurance is that you can not have been reimbursed for your car insurance premium by an employer.
There are many differences in how employers handle business expenses, even if you are a self-employed contractor. To protect yourself from doing the wrong thing, make sure you understand the employer’s rules and the tax laws. You may need to reach out to a tax professional or the IRS directly to ensure you are legitimately taking a car insurance tax deduction and to understand which strategy is best for your own personal financial situation.
And if you are losing your deductions with the new tax laws, you may want to shop around for a better deal on car insurance. The InsuranceWins form is a great place to start. Fill out some basic information and you’ll get new and fresh quotes to ensure you’re getting the best deal.
