Insurance and taxes – did you ever think that the two would go hand in hand? Insurance and taxes are both known to be financial obligations. With that said, the two must have some kind of relationship. While there are multiple types of insurance available, this article will focus on the relationship between auto insurance and taxes.
For those of you who have a car, do make sure to get auto insurance first as it can help safeguard your expensive asset – after all, you do not want your hard-earned money going to waste. An auto insurance provides you with a number of benefits that will make you want to jump on the bandwagon immediately. It does not stop there, though, as having the auto insurance in itself can also benefit you during your tax period. There are insurance related costs that can be deducted on your federal income tax return. However, you will need to know what can be deducted and how your insurance plan can affect those deductions.
Purpose of Vehicle & Taxes
First and foremost, let us address the purpose of your vehicle – if your vehicle is for personal use only, then you cannot deduct your auto insurance premiums on your tax return. If it used for business purposes, however, then there is a possibility of deducting a few car-related expenses, one of which includes insurance premiums.
If you are using your car for business related purposes and your employer reimburses you in full for the expenses incurred, then of course, those expenses cannot be deducted. If you are using your car for both work and personal related purposes, the only portion that can be deducted is that of the work use. Oh, and commuting to work does not qualify as work-related use.
Stolen or Damaged Car & Taxes
A vehicle that is stolen, damaged, destroyed in an accident, or destroyed by a true act of nature may claim a theft or casualty loss tax deduction. However, this is only possible if your auto insurance coverage does not fully reimburse you for the loss incurred.
Before anything, though, you will need to prove to the Internal Revenue Service (IRS) that you are the true owner of your vehicle. In addition to that, do not forget to provide them with all details necessary such as any reimbursement that you are anticipating from your insurance company, a lawsuit that you are soon going to file that may result in a cash settlement, etc. Again, you must take into consideration what you are already getting paid for – you will need to decrease your deductible loss from the money that you are going to receive as the deduction only covers losses that you cannot recover.
In the case that your vehicle was stolen, remember that the payment that you will receive is the fair market value of your vehicle today. For example, you bought the car for $30,000 two (2) years back. Today, however, the market value of the car is $20,000. Hence, what you will receive is $20,000 as the IRS requires you to use the smaller value of the property’s tax basis. If your car has a salvage value of say $2,000 (as determined by your auto insurance company) on the day of your accident, then your casualty loss decreases to $18,000.
Though in theory, it seems easy, the process in deducting losses in your tax statement can be tedious as you will need to qualify it. If you have a lawyer, make sure to ask him about it. If you are doing it yourself, have the IRS thoroughly guide you before submitting documents.
Any type of insurance can affect your taxes if you think about it. What is yours should be paid to you; if it is not paid in full, then the IRS must take into consideration the gravity of your loss. Though there are others ways in which car insurance affects your taxes, the two discussed above are probably the most important.
This is just the tip of the iceberg on how auto insurance affects your taxes. Learn more about this by reading http://education.temple.edu/sites/education/files/uploads/cte/DOCAPS_10_Part_3_of_3.pdf
Wondering how auto insurance affects your taxes? This and more tips, reviews, and how-tos at www.carinsurancecompanies.co. Don’t decide on feelings alone as knowledge is key to saving money.