When tax time rolls around, everyone is looking for ways to reduce their final tax bill. The Internal Revenue Service keeps the list of deductions and exemptions current on its website, but sometimes, unless you’re a seasoned tax preparer, hidden deductions available to you might be easily missed. One of those easily missed deductions is your car.
Most people don’t realize that if they purchased a new car within the tax year, or if they paid personal property tax on that car to their local community within the tax year, both kinds of tax payments might qualify as a deduction when time comes to file taxes. If you purchased a new car, you can discover the total sales tax assessed on the vehicle in the bill of sale that should have been provided to you when you purchased the car. There should be a section of these sale documents that itemizes everything that went into the total amount you had to hand over to drive the car away. You can take this figure, and in many cases, use it as an itemized deduction when preparing your taxes. You can also estimate the amount of tax you would have paid, by using a price estimation tool available online at Cars.com.
Many municipalities also levy personal property taxes on vehicles and other movable property. Each year, the community probably sends a form for you to fill out detailing what property you own. The assessor’s office will then affix a property tax for you based on the value of the property. This property tax can also be deducted when preparing your annual taxes.
You can also claim mileage on your vehicle if you use it for business purposes and have not been reimbursed for its use by your employer. To claim this kind of deduction, you will need to keep very thorough driving logs throughout the year as proof of driving for business purposes only.