Chris Tepedino is a feature writer that has written extensively about car insurance for numerous websites. He has a college degree in communication from the University of Tennessee and has experience reporting, research investigative pieces…

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Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states…

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Reviewed byRachael Brennan
Licensed Insurance Agent for 14 Years

UPDATED: Aug 12, 2020

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When you’re considering your auto insurance coverage options you probably aren’t thinking of taxes. Did you know that, in some cases, your auto insurance may be tax-deductible.

But this is only valid in certain situations that most everyday drivers may not qualify for. Keep reading below if you think you might be eligible for a car insurance tax deduction.

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Making Your Car Your Business

If you need your car in order to do a specific job and make money that requires driving, then you may be eligible to deduct your car insurance policy from your annual tax filing.

Unfortunately, no, this does not apply to the average joe who depends on a vehicle in order to commute to work each day. This only applies to people who specifically make money – either directly or indirectly – by performing the act of driving.

This also applies to small business owners who own a fleet of vehicles and require those vehicles to drive around in order to do business and make an income.

Property owners who travel to and from their properties will likely qualify. Any landlord who has to travel out to their property for the purposes of upkeep, cleaning, maintenance, and inspections can write their travel off as a tax deduction.

This tax rule can apply to Airbnb homeowners as well.

Of course, you will have to keep track of the mileage you travel for business purposes. This is the most common way of calculating your auto insurance tax deduction for property and small business owners.

Business vs. Regular Auto Insurance: Ford F-150 Legend: Regular Insurance Business Insurance State Farm Allstate Allied Infinity 21st Century 20 40 60 80 100 120 140 160 180 200 $91 $116 $94 $169 $144 $198 $104 $210 $151 $212

Independent freelance rideshare drivers can also qualify for this tax deduction. For starters, you cannot get a job with companies such as Uber or Lyft unless you have proof of insurance on the vehicle you plan to use to pick up and drop off your fares.

Unlike most partial auto insurance deductions, you can keep track of the amount of time you spend driving in order to calculate your deduction rather than tracking your miles. In the chart below, you can see how much of your monthly premium is deductible on your taxes.

If you have an insurance policy with State Farm that costs $91 per month, and you spend 30 percent of your driving time working for Uber, you can deduct $27 for that month. That’s a total deduction of $324 at the end of the year!

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Calculating Rideshare Driver Car Insurance Premium Tax Deductions Legend: Full Premium Cost 30% Tax Deduction 65% Tas Deduction State Farm Allstate Allied Infinity 21st Century 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 $91 $27 $59 $94 $28 $61 $144 $43 $94 $104 $31 $68 $151 $45 $98

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How to Handle Your Deduction When It’s Time to File Your Taxes

Of course, you have to do more than just drive your car in order to qualify for the state duction. You have to actually keep track of either the miles you drive or the amount of time you spend using your vehicle to earn an income.

Unfortunately, the IRS isn’t the type of bureaucratic organization willing to take you at your word.

You have to make sure that you keep detailed, authentic records of your travel miles and travel times in order to make sure you have earned the deduction. Otherwise, you risk getting audited.

Since rideshare drivers are considered self-employed, and their income is considered freelance earnings, they’re not taxed the same way a typical employee would be.

Most freelancers keep 100 percent of the money they make, and don’t pay any taxes upfront; but once they file their annual taxes at the end of the year, they will end up owing money to Uncle Sam in order to make up the difference (usually).

In such cases, deducting your auto insurance can only be done if you file what is called a Schedule-C, also known as a “Long Form C”. This is different from the average 1040EZ that wage workers typically file because it requires a bit of tedium in order to meticulously document and collect all of the deductions you are eligible for.

Property owners may end up filing a similar form. This helps them make sure they can deduct every single business expense so that their net income and overall tax debt doesn’t put their company in the red.

No matter which method you are using to calculate your tax deductions, it helps to recruit the assistance of a personal accountant or a tax expert who can make sure you do everything correctly.

Again, you don’t want to risk being audited by the IRS.

This could leave you vulnerable to some serious financial liability if the government feels you have not fulfilled your tax obligations. And unlike other financial debts, being of the red with the IRS can lead to criminal charges and even jail time.

Comparing Auto Insurance Company Quotes Legend: Car Insurance Quote Comparison State Farm Farmers Nationwide Encompass Allstate 25 50 75 100 125 150 175 200 225 250 275 $87 $143 $275 $101 $86

Some people may think that spending more on their car insurance – assuming they qualify for a generous tax deduction – might help them get a better return at the end of the year.

But in general, the best strategy is to compare quotes between multiple providers and make sure you get the best price on your auto insurance premiums.

If you give us just 5 minutes of your time, we can help you get the quotes you need from major providers near you so that you can get the most affordable premium.

Use our FREE quote tool to compare insurance rates now!