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Tax season is a hectic time of year, and each person who files for taxes tends to be looking for ways to keep more of their hard-earned cash in their pockets as opposed to giving it to Uncle Sam. In situations where a person is self-employed or uses their own vehicle for work purposes without being reimbursed by their employer, claiming a car insurance policy’s costs as a tax deduction is not uncommon. It is imperative to go about this process correctly, so as not to attract unwanted attention from the IRS. There are many things that you need to know in order to claim car insurance as a deduction.
If you are looking to claim aucarto insurance as a tax deduction, you will need a little bit of direction and knowledge to make it happen. With the advice here, you will be able to approach tax season with the knowledge needed for this sometimes-unexpected tax deduction opportunity. Car insurance premiums can be eligible, and there are many tips here to help keep the process smooth.
First off, it is a good idea to speak to a tax professional when filing season approaches. You will want to be sure that the deductions you are planning to take are legal in your state. Being able to take advantage of the tax deductions that you are eligible for can help save you money, or keep it in your pocket, come tax season.
Before delving into details, according to the IRS, if you use your car for business purposes, you can generally deduct all necessary and ordinary costs related to your vehicle. This includes automobile insurance premiums. If the only reason you use your car is for transportation to and from a workplace, however, your auto insurance premium cannot be claimed as a deduction. That said, if the vehicle is used for your business, or for employment-related job duties and functions, you can claim the expenses that come with a your transportation, the maintenance on your vehicle, and other costs associated with running your car.
The IRS allows for a standard tax deduction, and if you decide to take it can simplify applying for taxes significantly. If you choose to calculate your actual expenses over the course of the year, you will want to keep documentation of the car insurance premiums and maintenance bills you pay so you can present it when filing. While this can be a little bit more time consuming, it can also be the best decision to help keep money in your pocket when it is tax time. To file your taxes using your car insurance premiums as a deduction, you will want to make sure that you have a solid paper trail to provide in writing or through receipts, of these expenses. This paperwork is essential both when filing and for people who are audited after the process. Make sure that the requirements for filing these expenses are met.
If you are self-employed and use your vehicle for business purposes, and file Form 2106 Employee Business Expenses, it is highly likely that you will be able to benefit from claiming your policy expenses as a deduction. This is not the case, however, if you collect reimbursement for mileage or travel expenses.
The process that needs to be followed in order to claim car insurance premiums on your taxes becomes more complicated if you use your car or truck not only for business purposes but also personal ones. Proving, and even figuring out, how much a vehicle is used for each of these things, peronal and business, can be a little bit more tedious and time-consuming. If you are driving your children to after-school events and then going from there to business functions, things can get tricky. Drivers who use their cars for both personal and business purposes will need to come up with a percent for each of the two. When you know what percentage of the vehicle was used for personal reasons, and which for business, you will be able to take the next step in the process. If you are a person with a consistent work schedule, such as 9-5 as business hours and the afternoons and evenings as personal time, it will be a lot easier to maintain records and figure out percentages. On the other side of that, if your vehicle is used less time, like 2 to 4 hours a day, and erratically with no regular schedule, your deduction will likely be smaller, and the work you will need to put in to figuring it out may grow. For some people this might not be worth the time.
The amount that you use your car for business purposes affects how much money you get back on your tax return. The IRS looks for detailed records of expenses. Things do not go into categories like “almost a deduction;” people must be able to prove the deductions they are looking to take on paper or risk the IRS becoming more involved.
Keeping track of a strong paper trail that allows you to claim automobile insurance premiums as a deductible on your taxes should be part of a broader strategy for insurance record-keeping. Ask a professional to walk you through best practices and explain the best ways to keep records for your personal business. They will likely let you know to start paying attention to what you can and cannot claim earlier rather than later. Many people that are self-employed reach tax season and find out that with good record-keeping they could have claimed quite a bit more than they thought they could.
Another important factor is to keep proper track of your receipts as you get them. It is challenging to piece all of the information pertaining to taxes and deductions together in the month or so before the tax season comes, so spread the work out. Essentially, online resources can be fantastic for information, but it is still wise to talk to a professional in the tax industry as opposed to guessing the guidelines and situations for the state you reside in. This article looks to provide a general look at claiming car insurance as a deduction, as well as giving tips and information that you can inquire about when you see your insurance agent or read more of this sites high-quality articles.
Keep money in your pockets and get the deductions that you qualify for and deserve, it is often more than worth the time investment.
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