If you’re self-employed, you know that there are plenty of expenses that come with running your own business. One of those expenses is auto insurance. Fortunately, if you use your vehicle for business purposes, you may be able to deduct some or all of your auto insurance costs on your taxes.
What Qualifies as Business Use?
In order to qualify for a tax deduction for your auto insurance as a self-employed individual, you must use your vehicle for business purposes. This can include:
- Transporting goods or equipment
- Traveling to meet with clients
- Driving to job sites
- Attending business meetings or conferences
If you use your vehicle primarily for personal reasons, you may not be able to deduct your auto insurance costs on your taxes.
How Much Can You Deduct?
The amount you can deduct for your auto insurance as a self-employed individual will depend on a few factors. Firstly, you can only deduct the portion of your auto insurance costs that is directly related to your business use of the vehicle. For example, if you use your vehicle for business purposes 50% of the time, you can deduct 50% of your auto insurance costs.
Additionally, there are limits to how much you can deduct for your auto insurance. The IRS has set standard mileage rates for business use of a vehicle, which include a certain amount for auto insurance. For 2021, the standard mileage rate is 56 cents per mile. If you choose to use the standard mileage rate to deduct your auto expenses, you cannot also deduct the actual cost of your auto insurance.
However, if you choose to deduct the actual cost of your auto insurance, you may be able to deduct more than the amount included in the standard mileage rate. This will depend on the actual cost of your auto insurance and the percentage of your vehicle’s use that is for business purposes.
What Else Can You Deduct?
Auto insurance is just one of the expenses related to your vehicle that you may be able to deduct as a self-employed individual. Other related expenses that may be deductible include:
- Gas and oil
- Repairs and maintenance
- Depreciation
- Parking and tolls
Again, the amount you can deduct for each of these expenses will depend on the percentage of your vehicle’s use that is for business purposes.
How to Claim Your Auto Insurance Deduction
To claim your auto insurance deduction, you will need to file a Schedule C (Form 1040) with your tax return. On this form, you will report your business income and expenses, including your auto insurance costs. You will also need to keep records of your mileage and expenses throughout the year to support your deduction.
It’s important to note that if you are audited by the IRS, you will need to be able to provide documentation to support your auto insurance deduction. This could include receipts for your auto insurance payments or mileage logs to show the percentage of your vehicle’s use that is for business purposes.
Conclusion
If you’re self-employed and use your vehicle for business purposes, you may be able to deduct some or all of your auto insurance costs on your taxes. The amount you can deduct will depend on the percentage of your vehicle’s use that is for business purposes and whether you choose to use the standard mileage rate or deduct the actual cost of your auto insurance. Keep careful records throughout the year to support your deduction and be prepared to provide documentation if you are audited by the IRS.