Can I File My Car Insurance on My Business Taxes?

While in most cases you cannot deduct the cost of car insurance from your personal income taxes, you can use the cost of car insurance as a business deduction. By understanding when the costs create a deduction and the ways to deduct the costs, you may be able to reduce the amount of taxes you owe by deducting the cost of your car insurance.

Business Travel

When you use your car for business travel, you can deduct the costs of the travel which includes the cost of car insurance. Business travel does not include your commute from home to your place of work. If you use the vehicle exclusively for business travel, you can deduct the entire cost of the car insurance. However, if you use the vehicle for both personal and business travel, only the business related portion of the travel will create a deduction. The IRS provides two different ways to deduct the cost of business related travel, including the cost of car insurance.

Standard Mileage Rate

One method of deducting the cost of car insurance for business travel is by using the standard mileage rate deduction. Using this deduction, you simply calculate your total business miles and multiply the miles by the mileage rate. The IRS provides the standard mileage rate in place of the actual costs of travel including gas, oil, maintenance, insurance and other costs. For the 2011 tax year, the mileage rate is 51 cents per mile for travel occurring from Jan. 1 through June 30 and 55.5 cents per mile for travel occurring from July 1st through Dec. 31.

Actual Expense

In addition to using the standard mileage rate, you can also choose to deduct the actual costs of business travel, including car insurance. Though the actual expense method requires more documentation than the standard mileage rate, it may result in a larger tax deduction. If you use a vehicle for both personal and business travel, you can only deduct a portion of the cost of your car insurance. For example, if half of your travel is for business purposes, you can deduct half of the actual cost of your car insurance.

Record Keeping

Regardless of whether you decide to use the standard deduction or actual expense deduction, you must keep accurate records of the deductible business use of your car. To document the mileage, you should keep a log of the miles you travel for business as well as noting the date of travel, destination of the trip and the business purpose of the trip. If using the actual expense method, you will also need to track the total miles that you drive during the year as well as documentation of your car insurance costs. You should keep your tax records for at least three years after the due date of the return.

References

• Internal Revenue Service: 4. Transportation
• Internal Revenue Service; Topic 510 - Business Use of Car; February 2011
• Internal Revenue Service; Topic 305 - Recordkeeping; March 2011
• Internal Revenue Service; IRS Increases Mileage Rate to 55.5 Cents per Mile; June 2011
• Internal Revenue Service: 5. Recordkeeping