There’s usually not much good news when it comes to taxes. Maybe you get a refund some years, but most people generally feel like there putting in more than they’re getting out. Finding ways to save on taxes is a good goal. So, don’t overlook a pretty common tax deduction: your car registration. Let’s learn more about how you can deduct at least some of the money you pay to keep your car on the road.
It Matters How You File
There are certain circumstances when you might be able to partially deduct from your federal income tax the amount you pay to your state for car registration. The key is whether you file using the standard deduction or whether you itemize your deductions.
People who have income that is not reported as W-2 income, with taxes taken out by the employer, usually file itemized deductions. This allows them to deduct all sorts of business-related expenses, including state car registration fees.
With taxes, it’s either/or. You either file with the standard deduction or you itemize. You can’t do both. So, if you itemize read on to learn about deducting your car registration fees.
How Fees Are Calculated Matters
Every state has their own method of calculation to determine your fee to register your vehicle. Different factors are taken into account, such as the vehicle’s value, size, weight, and age. While other fees may be included in the total fee you are charged, only the portion of the fee that is based on the vehicle’s value is allowed to be claimed as a deduction. You are not allowed to deduct things like license plate fees on your federal taxes.
Let’s look at a simple example. Your state registration bill has arrived, and you owe $175. The state charges $2 for every $1000 that your car is worth. If your car is valued at $30,000, that’s $60 ($2 x 30) you can deduct from your federal taxes owed. It’s not as good as deducting the whole $175, but it’s something.
Some state’s help consumers in figuring out the value-based portion of their tax by providing a separate line item identifying the amount. Other states provide a worksheet to help you figure it out on your own.
Where to Deduct Your Car Registration
If you’re doing your own taxes, once you’ve figured out that you can deduct your registration fees you’ll have to figure out where you do this. Itemized deductions are taken on IRS Schedule A. Fees for value-based vehicle registration go on the line for personal property taxes.
While not everyone can deduct car registration taxes, and if you only have one vehicle it may not seem like much, every little bit helps. If you itemize and can deduct, make sure you are getting the most you can get. Taxes and insurance are part of owning a vehicle, so saving money wherever you can is just smart.
If you want to save money on your car insurance, InsuranceWins is the place to turn. Just give us a few details and we’ll get you on the road to saving more money on the cost of owning your car.