What is Commercial Auto Insurance and How to Deduct It on Your Taxes

Commercial auto insurance is a policy designed to protect vehicles used for business purposes. Whether you operate a fleet of trucks, deliver goods, or use your car to visit clients, this coverage safeguards your business against liabilities and damages related to vehicle use. Below, we’ll explain what commercial auto insurance covers, how to manage endorsements and adjustments, and how to deduct it on your taxes.

What Does Commercial Auto Insurance Cover?

Commercial auto insurance typically provides coverage for:

1. Liability Protection: Covers bodily injury and property damage caused by your business vehicle.

2. Physical Damage Coverage: Includes collision and comprehensive coverage for repairs or replacement.

3. Medical Payments/Personal Injury Protection: Pays for medical expenses for you, your employees, or passengers.

4. Uninsured/Underinsured Motorist Coverage: Protects you if the at-fault driver doesn’t have adequate insurance.

5. Hired and Non-Owned Coverage: Covers vehicles your business rents or employees’ personal vehicles used for business purposes.

Managing Endorsements and Adjustments

Commercial auto policies often require updates due to changes in your business. These updates are called endorsements. Examples include:

1. Adding or Removing Vehicles:

   • Notify your insurer when purchasing or selling vehicles.

   • Newly added vehicles increase your premium, while removed vehicles decrease it.

2. Changing Drivers:

   • Report new drivers or remove those no longer with your company.

   • Premiums may adjust based on the driver’s experience and driving record.

3. Usage Changes:

   • If your vehicle’s use changes (e.g., switching from deliveries to client visits), inform your insurer. Usage changes can affect your premiums.

Deducting Commercial Auto Insurance on Your Taxes

The IRS allows businesses to deduct ordinary and necessary expenses, including commercial auto insurance premiums. Here’s how to ensure this deduction:

Step 1: Keep Accurate Records

Maintain documentation for your commercial auto insurance expenses, including:

• Premium invoices

• Proof of payments

• Policy details showing coverage dates and amounts

Step 2: Allocate Personal vs. Business Use

If a vehicle is used for both personal and business purposes, only the business-related portion of the insurance premium is deductible. Track mileage using a logbook or app to accurately divide usage.

Step 3: Report the Deduction

The way you claim the deduction depends on your business structure:

• Sole Proprietors and Single-Member LLCs: Use Schedule C (Form 1040), under "Car and Truck Expenses."

• Partnerships and Multi-Member LLCs: Report on Form 1065 under "Deductions."

• Corporations: Deduct the expense on Form 1120 or Form 1120-S.

Example: Deduction with Adjusted Premiums

Let’s say your annual commercial auto insurance premium is $4,000. During the year:

• You add a new vehicle, increasing the premium by $1,200.

• A driver is removed, slightly reducing the premium by $300.

Your total premium paid is $4,900. If your vehicle usage is 80% business and 20% personal, the deductible amount is $3,920 (80% of $4,900).

Tracking Additional Driver and Expense Adjustments

1. Driver-Related Costs: If premiums increase due to adding drivers, these additional expenses are deductible.

2. Mileage Costs: Include fuel, maintenance, and repairs as separate deductions alongside insurance.

3. Endorsement Fees: Charges for mid-policy changes, such as adding vehicles or drivers, are also deductible as part of your insurance costs.

Commercial auto insurance is an essential business expense that protects your operations while providing significant tax benefits. By maintaining accurate records, understanding how premiums adjust with endorsements, and properly reporting business usage, you can ensure you’re maximizing your deductions and staying compliant with IRS regulations. Consult with a tax professional to optimize your deductions for your business and address any complex situations.

If you need a quote for Commercial Auto Insurance we have partner agents that can refer you to for a quote and cover your needs give us a call at 800-527-8020