A surprising number of everyday expenses are tax-deductible, including taxes you pay when buying a car. The catch is that you must itemize to take advantage of this break. As of 2014, the standard deduction is $6,200 for a single filer and this goes up a little each year. To make itemizing worth your while, the total of all your itemized deductions should exceed this amount, but can include things like medical and dental expenses and charitable donations to help you get there.
State Income Tax vs. Sales Tax
When you itemize, the Internal Revenue Service allows you to claim a deduction for either state income taxes you've paid or sales taxes. Determine how much you paid in state taxes and compare this to how much you paid in sales tax. If you paid more in income tax, you're probably better off taking that option. This choice is available through the 2014 tax year. Check with a tax professional to find out if it's extended for future years. Sales tax may still be deductible, but different rules might apply.
Taxes Associated With Your Car
You have another decision to make if you want to itemize and claim a deduction for sales taxes. You can add up all your receipts for the year and use that number or you can use the IRS standard tax table. It's included on Schedule A, the form you must fill out with your return to claim itemized deductions. Any excise tax you paid for your vehicle counts, too, but this is considered a personal property tax, not sales tax. It's still deductible and it counts toward the total of all your itemized deductions, but it's entered separately on Schedule A. The same applies if your state imposes a personal property tax when you buy a car.
Video of the Day
Using the IRS Tax Table or Calculator
Taxpayers who neglect to save all their receipts can use the IRS standard tax table on Schedule A or the sales tax deduction calculator found on the IRS website. If you use the calculator or the table, your deduction is based on an average of what someone with your income in your state is likely to have spent. If you have your receipts and they amount to more than this, you can use them as your deduction. But in the case of some expensive items that incur hefty sales taxes, including your car, you're allowed to use the IRS number and add this sales tax to determine your deduction.
If you're thinking you shot yourself in the foot tax-wise because you leased a new car rather than bought one, you can relax. Sales tax is still rolled into the lease deal, so the IRS says it's deductible, even though you didn't technically purchase the car.