If you buy a pre-owned vehicle in California, used car tax can add significantly to the cost of the vehicle. From sales tax to smog and emissions testing, the State of California always demands its fair share from motor vehicle owners. While we all need to pay lawful taxes, we don't need to pay too much. So, here are some tips on how to reduce the amount of used car tax you will need to pay.
Save on Used Car Tax with a Trade In at Purchase
California sales tax rates are among the highest in the country and range from about 8% all the way up to nearly 11%. So, you can see that this will quickly increase the cost of a used car by a considerable amount. When you purchase a used car in California, you might want to trade your older car in to the dealership (if you have one available) so that you can save on the amount of sales tax you will have to pay.
Whenever you trade in a vehicle, the amount of the trade in allowance will be deducted from the sales prices of the vehicle you purchase. This will result in you being taxed only on the balance and not on the original sticker price. If your trade in is worth a few thousand dollars, this could result in considerable sales tax savings.
Know Your California State Tax Laws
You should occasionally visit the California Franchise Tax Board (www.ftb.ca.gov) and stay informed of changes in tax laws that may affect you and the use of your vehicle. If changes to the State's tax code are made, they will always be listed on this site. You can also check here for deductions and credits that might help you save on your California income tax return as well. Also, be aware that some deductions that are allowed on your Federal return may not be acceptable on your State income tax return. So, check as often as you need to be sure you know what qualifies, and what does not, as a deduction on your California income tax return.
Keep a Record of Your Mileage
Start a mileage journal to save even more on your California income taxes. Create a record for all of your driving by entering the mileage on the odometer - before and after driving. Also, jot down the purpose and destination for your trip. You may be able to deduct mileage expenses for certain activities. A journal will help you determine how many miles can be used in the calculations for these money saving deductions.
Keep Those Receipts and Records for Your Vehicle
Many people don't realize that you are many times more likely to be audited by the California tax authorities than the IRS. So, if you itemize deductions and claim expenses for gas, oil or other service related purchases on your income tax return, make sure you keep those receipts for at least 3 to 5 years. Not only will it help you to calculate deductions correctly, it could help you avoid thousands of dollars in penalties should the state tax guys decide to audit your return.
Keep Your Car Properly Tuned Up and Save on Taxes
California is well known for hefty smog and emissions testing fees which are in fact de facto road taxes. Fees for these tests can be quite expensive, and you never want to pay too much by having to have your vehicle tested multiple times because of a smog test failure. So, make sure you keep your vehicle tuned up properly to avoid penalties and retest fees.