Can I Write Off Car Insurance as a Business Expense?

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When Is Car Insurance a Deductible Business Expense?
How Does the Deduction Work?
Which Option Will Save Me the Most Money?

When Is Car Insurance a Deductible Business Expense?

I use my car for business purposes, but I'm confused about what I can deduct as a business expense when it comes to the insurance costs. Does it matter whether I use the car for business and personal use? What expenses are deductible, and how can I deduct them?

Let me start by saying that insurance deductions are tricky business. You obviously need to make sure you qualify for the deduction, but you also want to be sure you're getting the most bang for your buck when you're using the vehicle for business. Let's dive into some of the details of how you can deduct car insurance premiums as a business expense.

There are two big things you need to keep in mind when you want to deduct auto insurance premiums as a business expense:

• Business-use policy: The first thing to keep in mind is that to deduct auto insurance as a business expense, you have to have a business-use policy. These policies are generally a bit pricier than standard personal car insurance policies but are required if you're using the vehicle in a business. So, chances are, if you're using the vehicle in a business already, you have this policy. 
• Mixed-use: You can deduct what actually counts as business use. So, if you only use the vehicle for business, all of the expenses associated with the vehicle are deductible, including insurance premiums. If the vehicle is for both personal and business use, you can deduct the business portion of the expenses. If you use the vehicle 50% for business and 50% for personal use, you can deduct 50% of the expenses. 

In short, if you have a business-use policy and use your vehicle at least in part for your business, you can deduct some (or maybe all) of the cost of your insurance premium.

How Does the Deduction Work?

If you have a business-use auto insurance policy and use your vehicle for business purposes, you have two options for deducting your car-related expenses: the standard IRS deduction or calculating your own expenses. Let's talk about what each means in greater detail.

• Standard deduction: The standard deduction is what it sounds like. It's a standard rate that the IRS has calculated for car expenses if you aren't itemizing. In 2023, the standard deduction was 65.5 cents per mile.
• Itemized deduction: If you're going to itemize, you need to document all expenses carefully throughout the year. This includes insurance premiums and anything else related to your vehicle that you're planning to deduct. This is even more important if you use the car for business and personal use, so you can prove the amount of use that's business-related. 

Your employment status determines which form you'll file to write off your insurance costs:

• Self-Employed: You'll file a Schedule C.
• Employed by a third party: You'll file a Form 2106 - Employee Business Expenses.

We always recommend that you speak to a tax expert before claiming your auto insurance as a business expense or filing any forms. Just think of it as double-checking any work you've done on your own.

Which Option Will Save Me the Most Money?

There is no "best choice" that suits everyone. Whether you use the standard deduction or itemize your vehicle expenses depends on the factors we discussed above, including how often you're using the vehicle for business, the total expenses that means you can deduct, and how all of that measures up to the standard deduction.

Naturally, you'll choose the option that saves you more. 

If you drive a personal vehicle for business purposes, it's best to talk to an independent insurance agent to understand all your options.