Every tax season people look for more ways to reduce their income tax bill with the hope of getting a bigger refund. Of course, accountants will recommend taxpayers start planning at the beginning of the year, but that seldom happens.
In looking for deductions, people often ask: Is auto insurance tax deductible? CoverHound addressed this in a blog post, highlighting that the personal use of a car is not tax deductible. Unless you own a business, and use your vehicle in the operation of that business, you should say goodbye to the notion of writing off your auto insurance or vehicle expenses on your tax return.
But for others with less absolute situations, there are still ways you can be tax savvy with your auto insurance.
For those who do operate a business and use their personal vehicle in doing so, expenses like tolls, mechanical maintenance, car washes and gasoline can all be deducted. Those who use a personal car for both business and personal purposes can deduct the percentage in which the vehicle is used for the business, according to the Internal Revenue Service. For example, if an individual uses their car to transport inventory or deliver goods and services half the time the vehicles in use, they can deduct half of the cost of their auto insurance, gasoline expenses and general maintenance on their federal income tax form.
There are several situations in which individuals can claim deductions for mileage, according to Maryalene LaPoinsie of U.S. News and World Report. By itemizing with a Schedule A, taxpayers can deduct mileage for driving to and from doctors’ offices, the pharmacy and the hospital. If an individual drives their car to a charity for volunteer work, mileage can be deducted. Moving can also fall under job search deductions, as long as that individual is relocating for a new job that is at least 50 miles away. Job-hunting expenses such as transportation, food and lodging must exceed two percent of the taxpayer’s adjusted gross income to be eligible for a tax deduction, says Kevin McCormally of Kiplinger. For more on moving expense deductions, see IRS Publication 521.
There is no threshold for mileage deductions when it comes to the self-employed, says LaPonsie. Valid miles include driving to meetings and client locations to picking up supplies for a home office. Uber and other rideshare drivers can save a bunch on federal income taxes. Drivers who itemize can deduct the cost of gasoline, maintenance, insurance and repairs while driving their personal vehicle for Uber, according to SherpaShare, which has posted detailed photos of IRS Form 1040 Schedule C highlighting the areas Uber drivers can deduct vehicle depreciation, cost of lease, or auto loan interest.
An important thing for rideshare drivers to remember though is the statements they receive from their employer only show the miles accrued with a passenger in the car. Drivers can also deduct the mileage they use in leaving home to get to their first passenger each day, says RideOrDriveUber.com.
Other miscellaneous deductions Uber drivers can take include, AAA memberships, parking fees, food and drinks for passengers, cellphones, wireless plans, and tolls. H&R Block has more detailed information for rideshare drivers including reporting using Schedule SE.
With Uber expanding its operations into the food delivery and package delivery markets, more and more people will be signing up to be drivers, with existing drivers expected to add deliveries to their routes.
The ride-share company plans to go live with its UberEats app in ten U.S. cities, Douglas MacMillan reported for the Wall Street Journal. Uber also is opening in new markets across the country giving taxis more competition. Norfolk International Airport recently signed an agreement with Uber, which will allow drivers to pick and drop off passengers at the Virginia airport, 13NewsNow reported.
But there are limits to the amount a business can depreciate a vehicle. The IRS Section 179 says the limit for certain passenger vehicles is $11,060 and for trucks and vans, $11,160. If a business purchases a vehicle such as a Tesla Model X, (or other vehicles with a Gross Vehicle Weight Rating of 6,000 pounds) it allegedly can deduct up to $25,000 of the purchase price, according to James Ayre of Clean Technica. However, Tesla themselves issue a disclaimer that each individuals tax situation may be different and that personal tax accountants should be consulted.
For itemized deductions, taxpayers need to track their expenses to prove to the IRS the deductions are legitimate. Thankfully, smartphones and apps can make logging miles easy.
Mileage-tracking apps such as TrackMyDrive and Everlance are available for iOS and Android mobile devices. The apps automatically track mileage using the mobile device’s GPS when the car starts moving. Drivers can categorize the trips and download reports for tax purposes. However, according to Michael McDonald of Time, chances of a tax audit are lower this year as the IRS received more funding for customer service but not for tax enforcement.
Its not unusual to feel inundated with details when filing your tax returns, but hopefully the above information gives you a better idea of how to go about getting the most out of your tax refund.
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.