Can I Deduct My Car Insurance on My Business Taxes?

Owning a business opens up a world of tax write-offs that people with regular W-2 jobs can't claim. The Internal Revenue Service's general rule is that if an expense is "ordinary and necessary," you can write it off against your business's gross income. This provision becomes especially valuable when you are able to take personal expenses, such as your cell phone or car, and write off your business usage of them, giving you business tax savings on money that you'd be spending anyways -- even if you didn't have a business.

Business Car Usage

To be able to deduct your car insurance and other car expenses, you need to use your car in the service of your business. While the IRS doesn't consider commuting to be a business activity, anything else that you do with your car for business purposes is. This includes driving to visit clients, using your car to go to the store to pick up supplies, or driving to a business-related conference.

Determining Business Use Percentage

If your car is used 100 percent in your business, figuring your deduction is easy -- every expense is deductible. However, if you split the use of your car between your business and your personal life, you can only deduct your business car expenses. To substantiate this, the IRS requires you to keep a dated mileage log that shows all of the trips in your car and their business purpose, along with your odometer readings. You can then divide the total number of business miles driven by the total number of miles driven to find your business use percentage. For example, if you drive your car 14,531 miles per year and 9,669 of them are business miles, your business use percentage is 66.54 percent.

Allowed Expenses

When you claim your actual car expenses, you can write off a lot more than just your car insurance. The IRS allows you to expense your gas, oil, maintenance and repair costs. You can also claim your registration fees and either your lease payments or the interest you pay on your car loan, plus a depreciation allowance. To find your annual deduction, add up all of your expenses and multiply them by your business use percentage. For example, if your car costs you $7,200 and you use it for business 66.54 percent of the time, you'd get a $4,791 deduction.

Standard Mileage Rate

If all of this record keeping sounds like too much of a hassle, the IRS gives you another option. Instead of writing off your actual expenses, you can claim a flat rate for every mile you drive for business purposes. The rate typically adjusts annually -- it was 55.5 cents in 2012 and is 56.5 cents per mile as of the date of publication in 2013. If you claim the standard mileage rate, you just multiply your business miles by the rate. For example, if you drive 9,669 miles during 2013, with the rate at 56.5 cents, your deduction would be $5,463. While you won't be separately writing off your car insurance, it and all of your other auto expenses are built into the mileage rate.

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About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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