The Benefits of Car Insurance Deduction

 

The Impact of Car Insurance on Income Tax: What You Need to Know
Car insurance is tax deductible as part of a list of expenses for certain individuals. … While you can deduct the cost of your car insurance premiums, they are just one of the many items that you can include as part of using the “actual car expenses” method

Section 1: Tax deductions
You can write off your car insurance premiums:

First, be sure to make sure that you have good records for the amounts you paid. The IRS requires receipts for all premiums paid to a different person than for your car insurance policy. You will need to include insurance documents for each of your vehicles.

Second, if your auto insurance premiums are higher than $50 a month, you may be eligible for a tax break of up to $250 a year. In this case, if you own a car, you will need a quote from a company in your state. The IRS provides a sample letter that you can use to find out more.

You can also deduct the amount of insurance premium that exceeds $2,500, if it’s paid by you.

Why car insurance is tax deductible
There are a couple of reasons why you can deduct the cost of your car insurance:

Depending on your household status, you can exclude some of the insurance premiums as part of your AGI, as long as you report your insurance as “necessities”. Your actual car expenses exclude those amounts you can’t deduct, but you’ll still be eligible to deduct the full cost of any new cars, you choose to buy after 31st March 2015. Your actual car expenses exclude those amounts you can’t deduct, but you’ll still be eligible to deduct the full cost of any new cars, you choose to buy after 31st March 2015.

How car insurance affects your taxes
The income tax on a taxable event includes the marginal tax rate, the aggregate amount of taxes due, and certain taxes, like federal gift tax, value added tax, excise tax, and many others. … The actual car expenses method may result in a significant decrease in the amount of taxes due, and even a significant increase in taxes because the amount of actual car expenses may be larger than the amount of taxes due.

Your car insurance expenses can be tax deductible under the actual car expenses tax deduction

You can take the “actual car expenses” method of calculating your taxes when you file your federal income taxes and also have your insurance premiums included in the list of actual car expenses. …

What to keep in mind when deducting car expenses
“Car insurance is the most common personal expense that people overlook when they think about tax deductions” by Amanda Petrusich

By now, most of us have heard that we can use our medical and casualty expenses to offset our income tax. The big question is what exactly to deduct.

The Benefits of Car Insurance Deduction

Research by the Federal Reserve Bank of New York found that 23 percent of tax filers claimed a medical or casualty expense as a personal deduction on their federal tax return. This means that only another 3 percent have no deductions at all.

Because of this, car insurance qualifies as a deduction. Keep in mind that some of the expenses you may include may not qualify for the deduction, such as public and private school tuition.

Conclusion
If you have purchased a new car, then you might be aware that the first three months are considered part of a tax-free period where you can claim the cost of your car insurance as an expense. The payment can be claimed back, meaning that it is not taxed on your income. Should you sell your car during this period, then you will have to pay a different tax to other car owners. What you need to know is what the car insurance deductibles do, and how much tax you pay when using the vehicle expenses method. It’s a different story when you buy a second car. In this case, you are on the hook for the cost of both the car and the insurance.

The writer is director at Insureon, a leading online car insurance broker

*Original article online at https://insureon.