Each year, as tax season approaches, you’ll spend a day mulling over the financial events of the past year. If you bought an item of significant value, such as a car, it pays to find out if you can use the expense as a deduction—which would lower the total amount of taxes you need to pay. To figure out how your bill or refund might be affected, take a look at the following guide.

Itemizing Your Deductions

While the sales tax that’s tacked onto your bill may seem like an unreasonable amount, you can likely deduct it from your taxes. However, to claim this deduction, you need to itemize by filling out Schedule A on Form 1040. This stands whether you bought a new or used vehicle, and regardless of whether you purchased it from a dealership or a private seller.

Choosing Between Sales & Income Tax

Unfortunately, you’ll have to choose between taking a deduction for sales tax or for your state and local income tax. So how do you choose? If you end up paying more in state and local sales taxes than you did you income taxes, it pays to deduct sales tax. Also, if your state imposes a higher tax on cars, you can only deduct the “general rate” of sales tax levied over all other purchases.

Documenting Tax Payments

To successfully deduct the sales taxes from your vehicle purchase, you should have clear evidence of the payment. The best proof of purchase is a copy of the agreement you signed at the dealership, which will show how much you paid and what year it was. If you are asked for further clarification from the IRS, you can use this document to quickly prove your payment.

If you’re confused about how to claim this deduction, turn to the tax masters at Simplified Tax. They’ve been serving residents of Sparta, WI, for over 30 years, and they’ll be proud to optimize your next tax preparation efforts. These certified public accountants are well-versed in state and federal tax laws, and they are constantly memorizing updates to the tax code. To learn more about their services, visit the website or call (608) 269-2633.