Federal State Sales Tax Deduction

• As with all other deductions, you’ll need to itemize your deductions rather than claiming the standard deduction to claim sales tax on your vehicle. If you kept receipts of all of your purchases throughout the year you can total your sales tax receipts manually. If, like most consumers, your tax records aren’t that detailed, you may refer to the Optional State and Certain Local Sales Tax Tables in Schedule A to estimate the amount you can deduct, based on Texas’ 6.25 percent sales tax rate, your income and the number of exemptions you claimed on your W-4. Enter this amount on line 4 of the Sales Tax Deduction worksheet in Schedule A.
  
  

Additional Discount for Selected Items

• Because most people don’t purchase expensive items such as cars each year, the IRS excludes vehicle purchases from its local tax tables. Because of this, in the years you purchase a vehicle, you’re allowed to claim Texas sales taxes – but not local sales taxes – assessed against the price of the vehicle. For Texans, this is 6.5 percent of the final purchase price, but it’s only applicable if you purchased it from a dealer. Private party sales in which you weren’t assessed sales taxes don’t apply. Enter this amount on line 7 of the Sales Tax Deduction worksheet.
  
  

Bottom-Line Impact

• While the sales taxes you pay on everyday goods might seem like a minimal expense, don’t underestimate their value as a deduction, particularly in the years you purchase a vehicle. For example, if you earn between $40,000 and $50,000 and claim two exemptions on your W-4, the IRS allows you to claim a $697 deduction for state sales tax. If you purchase car with a nearly average price in 2011, $30,000, you paid an additional $1,950 in state sales taxes that you may also claim as a deduction, which brings your annual sales-tax deduction up to $2,647, or half of the standard deduction for an individual taxpayer.
  
  

Other Types of Sales Tax

• Depending upon where in Texas you purchased your vehicle, you may have paid other sales taxes than merely state taxes. City sales taxes range from 0.25 to 2 percent, while counties assess an additional 0.5 to 1.5 percent. Special purpose and transit districts may increase sales tax assessments by 0.375 to 3 percent, combined. Only state income taxes may be claimed as a deduction on your federal income taxes.