Tax deduction simply refers to a reduction in the taxable income and is mostly due to expenses especially the ones incurred into additional income. It is worth noting that tax deductions help to reduce the taxable income and not the tax.
People drive their cars for business uses are entitled to claiming some auto-related expenses during the tax return. What some people don’t know is that their car insurance premium is one of such expenses. One can make some very significant savings for claiming the car insurance premiums that they pay to the American insurance firms like tax deductible.
Despite the fact that differs in various states, the amount of premiums you use to purchase your car insurance policy could be worth it, especially if your work involves being in the road most of the times.
When entitled to claiming car insurance premiums like a tax deductible
Although the amount of premium used for buying car insurance policy from American insurance firms is dependent on various factors, the insurance rates can have a significant influence on the monthly financial plan if:
- You are to some extent an inexperienced driver
- You drive a leased or expensive car
- Your job extensively revolves around driving on a busy road.
Gratefully, the IRS provides various ways that you can use to claim the auto insurance premiums like tax deductible.
- Business deductions
Any person in self employment and conducts their business by driving the car around can certainly claim the car insurance premiums as a tax deductible. This deduction amount will however depend on the time the vehicle is used in the course of the business. For instance, the savings could be substantial if the business is extensively done by the road and minimal when most of the work is done in the home office. There is a certain business administration that helps people to determine if their business is registered in their state.
- Employee deductions
Certainly, there are many people who operate a car in their jobs which is not self employment. These people are also entitled to claim their car insurance premiums as a tax deductible, provided they frequently use their car to attend work related events as part of their responsibilities.
Nevertheless, you can’t claim these deductions from the IRS if the employer compensates you for all the auto-related expenses such as auto insurance, maintenance and gas. You should confirm with the employer if their policy agrees with this expenses and what it covers.
- Personal use
However, you should keep in mind that, if you utilize you car for personal uses such as travelling to work or driving to visit friends, you certainly can’t claim your car insurance premiums like tax deductible using the IRS and they don’t them job-related expenses. If IRS allowed citizens to make this claim, many Americans would go for it since driving to work is a common behavior.
- Car leasing
The other situation you can be allowed to make claim of tax deductions using car insurance premiums is if the vehicle you are using for conducting your business activities is leased.
Various ways of claiming auto insurance premiums as a tax deductible
As we have previously stated, people using their vehicles for business purposes are entitled to claiming the car insurance premium as a deduction during their tax return. This is done with the IRS (Internal Revenue Service) through the following ways:
- Actual expenses
This involves filling all actual expenses that you have incurred as a result of driving your car to attend to job- related activities. This basically includes various expenses such as fuel, insurance that you get from American insurance firms, licensing and repair costs. You must therefore take care of all the receipts as you must present them to the IRS in order to make this claim.
- Standard mileage rate
This is the other method you can utilize to determine the car expenses inclusive of the car insurance premiums is the rate of standard mileage. Many people choose to use this method as it doesn’t involve a lot of documentation. This method is also used by companies to compensate their employees who use their cars to go to their place of work, since as we have seen they can’t make claim of tax deductions on the insurance premiums as this is considered as a personal use.
You can effectively maximize the tax returns by claiming deductions using the auto insurance premiums especially if most of your work involves being on the road. Therefore if you are not sure of how you can claim for tax deductions on the car insurance premiums, it is advisable that you contact a professional such an accountant who will advise you on how you can successively enjoy this benefit of tax deduction on the auto insurance premiums during the tax return.