Of Tax Deductions And Auto Insurance Costs
Do you know you can apply tax deductions on your auto insurance premiums? This is a good way of managing auto insurance rates that many people don't know or understand. On that note, here are a few things you should be aware of before the tax seasons come:
It Doesn't Apply To Personal Use
Personal car insurance isn't eligible for tax deductions; the deductions only apply to cars used and insured for business purposes. This deduction is possible because your business car insurance is an expense for running your business. For example, if you manage a home bakery and have a car you use for its delivery, and you have insured it as such, then you can apply tax deductions to its insurance coverage.
There Are Two Major Ways of Handling the Deduction
The Internal Revenue Service (IRS) has a predetermined rate for auto insurance deductions. However, it also allows you to calculate the actual expenses used in running the business so that you can calculate the actual deduction to claim. Depending on your circumstances, this second option may be more beneficial, but it is tedious. If you are tax savvy or if you have multiple business vehicles, it might be worth it to calculate the actual expenses and their associated deductions and compare it to the standard IRS rate before making a decision.
You Need Proof For All Your Expenses
The IRS will not just take your word for it when you quote how much you have spent on your business, in terms of insurance coverage, in the previous financial year. You need proof of all the expenses you are claiming. This means you should start keeping receipts and records so that you can have an easy time with the deduction when the tax season comes along. This may not be difficult for vehicles exclusively used for business operations, but it can be difficult for mixed use cars since you need to prove the percentage of expenses (including insurance) that went to business use.
Commuting Doesn't Count
Lastly, note that the deduction is also possible for a personal car that you use for business purposes (as long as you can provide proof). A good example is when you have a personal car that you regularly use to transport materials for your construction business. However, commuting to and from your business place doesn't count as a business use; so you are out of luck if that is the only business your personal car sees.
Therefore, in addition to asking for all the discounts possible for your insurance coverage, see if you can use tax deductions to keep your insurance costs low. A tax professional can help you maximize these deductions. For more information, talk with a company like Webers Insurance Service Inc today.