As a small business owner, you're likely no stranger to keeping track of expenses. But is car insurance a business expense that you can write off on your taxes? According to the IRS, business use of a car can be a deductible expense.
The key is to keep accurate records of how you use your car for business. For example, if you drive 10,000 miles per year and 5,000 of those miles are for business, you can claim that 50% of your car expenses as a business expense.
However, it's not just about the miles. If you use your car for business purposes, such as transporting equipment or meeting clients, you can also deduct expenses related to fuel, maintenance, and even parking.
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Can Auto Insurance Be Deducted?
Yes, commercial auto insurance is tax deductible for businesses, as long as the vehicle is used for business purposes.
To deduct the cost of commercial auto insurance, a business must meet certain criteria. The vehicle must be used for business purposes, such as transporting goods, visiting clients or customers, and commuting to and from work locations.
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If the vehicle is also used for personal purposes, the business can only deduct the portion of the insurance cost related to the vehicle's business use. This is where keeping detailed records of all vehicle expenses comes in handy.
Businesses must use the actual expense method of deducting vehicle expenses rather than the standard mileage rate. This means they can deduct the full cost of the commercial auto insurance premium and other expenses like fuel, maintenance, and repairs.
To support the deduction, businesses must keep detailed records of all vehicle expenses, including receipts and mileage logs.
Here are the two accounting methods for deducting insurance premiums:
- Cash method: You generally deduct insurance premiums in the tax year you paid them, even if you incurred them in an earlier year.
- Accrual method: You can’t deduct insurance premiums before the tax year in which you incur a liability for them, or before the tax year in which you pay them (unless the exception for recurring items applies).
Business Insurance Premiums
Business insurance premiums can be a significant expense for businesses, but they're also tax deductible. Businesses can deduct insurance premiums in the tax year they apply, as long as the vehicle is used for business purposes.
The IRS allows businesses to use either the cash method or the accrual method of accounting to deduct insurance premiums. If you use the cash method, you can deduct premiums in the tax year you paid them, even if you incurred them in an earlier year.
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Here are the key differences between the cash method and the accrual method:
Businesses must keep detailed records of all vehicle expenses, including receipts and mileage logs, to support the deduction. This is especially important if the vehicle is used for both business and personal purposes, as the business can only deduct the portion of the insurance cost related to the vehicle's business use.
Take a look at this: Can I Put My Business Vehicle on My Personal Insurance
Frequently Asked Questions
Can I get car insurance under my business name?
Yes, you can get car insurance under your business name if your company owns vehicles titled in its name. However, if you're a solo business owner using your personal vehicle for work, a personal auto policy may be sufficient
How do I write off my car as a business expense?
To write off your car as a business expense, use a Schedule C (Form 1040) if you're self-employed or a business owner, or a Schedule F (Form 1040) if you're a farmer. Deduct your business-related car expenses to reduce your taxable income.
What business vehicle expenses are tax deductible?
Business vehicle expenses that are tax deductible include gas and oil, garage rent, car insurance, loan interest, registration fees and licenses, rental or lease payments, and tires. Review our guide for more information on eligible expenses and tax deductions
Sources
- https://www.dicklawfirm.com/blog/2023/april/is-commercial-auto-insurance-tax-deductible-/
- https://www.irs.gov/taxtopics/tc510
- https://www.insureon.com/small-business-insurance/tax-deductible
- https://www.business.com/insurance/expenses/
- https://www.athenscpa.net/post/guide-to-deductible-business-expenses-part-4-insurance-premiums
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