One of the biggest ways to save money on your taxes is to account for all the deductions you have. If you are self-employed, you can write off a percentage of your car insurance as a business deduction depending on how much you use your car for business purposes. If the car is used solely for business, such as a delivery truck, the entire expense of car insurance is deductible. You must follow the guidelines to calculate an accurate percentage of business useage and deduct accordingly to avoid being audited by the IRS.
Car Insurance Deduction
Keep a log of the number of miles you use each day solely for business purposes. This can be done in a simple notebook, on a smart phone, or a computer worksheet such as Excel. At the beginning of the trip, record the number of miles on the odometer. When the trip is over, write down the number of miles driven. Make sure to keep the number of the miles driven for personal use or for commuting separate. This is vital because you need all three numbers to calculate what percentage of your insurance you can write off.
Calculate the percentage you use your car for business. For example, if over the course of the year you've driven 10,000 miles for business, 2,000 miles commuting, and 6,000 miles for personal use, then the percentage of miles you've driven for work is 55 percent. This percentage is calculated by adding business, personal and commuting miles and dividing the business miles by the total number of miles you drove during the year. Therefore, in this instance, you could write off 55% of the total cost of your insurance.
Don't fret if you haven't kept track of your daily mileage. If your weekly driving schedule is fairly identical in terms of business use, personal use and commuting, you can use that as a sample to base your yearly percentages on. For example, if over the course of a typical week you drive 200 business miles, 50 commuting miles and 100 personal miles, you'd be able to write off 57 percent of your insurance.
- yellow car, a Honda Japanese sport car model image by alma_sacra from Fotolia.com