Generally, you can calculate business vehicle expenses one of two ways: the standard mileage rate or the actual expense method. Depending on your situation, you might qualify for one or both methods. If you qualify for both – and you don’t mind crunching the numbers – it might be worth it to calculate both ways to see which method gets you the bigger deduction.
Standard mileage rate: Auto insurance isn’t itemized as its own expense, but rolled into the government calculated rate (56 cents per mile driven for business use in 2021 or 58.5 cents per mile driven for business use in 2022, according to the IRS standard mileage rates).
Actual expense method: List the separate costs of operating the car (including gas, oil, repairs, tires and insurance) and deduct the percentage of those costs that can be attributed to miles driven for business.
Of course, it’s possible your car expenses (including auto insurance) might not be tax deductible at all. Here’s what to expect in a few common situations:
If you’re self-employed: If you are self-employed and use your car exclusively for your business, you may be able to deduct certain car expenses, including your insurance premium. Under the Tax Cuts and Jobs Act, taxpayers can’t claim a miscellaneous itemized deduction for unreimbursed employee travel expenses.
If you use your car for both business and personal reasons: In this situation, only the portion used for business reasons is tax deductible. You can’t claim your commute to and from work, but there are deductions available for work-related driving duties like visiting clients or picking up work supplies.
What about expenses related to an auto insurance claim?
Using your car only for personal reasons like running errands or going shopping, it is not a write-off on your tax returns. But if your car was stolen or totaled after an accident that wasn’t your fault and the damage exceeds the limits in your insurance policy, you may be able to claim the loss as a tax deduction. Limitations may apply based on the damage costs and your income.
It’s a good idea to get in touch with a certified public accountant or tax professional to review the IRS guidelines for business expenses and make sure that you are entitled to these and other tax deductions. The latest tax guidance can be found at IRS.gov.
It can also be a good time to review your auto insurance policy to be sure that you have the coverages that you need. Contact your local ERIE agent for more information about insurance coverage.
This story was originally published in 2018. It was updated with new information in 2022.
A better insurance experience starts with ERIE.
Haven’t heard of us? Erie Insurance started with humble beginnings in 1925 with a mission to emphasize customer service above all else. Though we’ve grown to reach the Fortune 500 list, we still haven’t lost the human touch.
Contact David Pendleton & Associates today to experience the ERIE difference for yourself.