ADVISORY/Income Tax Deduction Can Help Ease the Impact of Higher California Car Licensing Fees.

Business Editors/High-Tech Writers

ADVISORY...

--(BUSINESS WIRE)

You've probably heard about the tripling of the car tax in California. What you may not have considered is that when you car tax goes up your income taxes may go down. Fred Grant, CPA and senior tax analyst for TurboTax(R) software takes a look at how you can save dollars when it comes to tax time. "Although higher California licensing fees impact your wallet, there may be a benefit in the form of an income tax deduction when tax time rolls around," says Grant.

Here's how it works. You generally get a tax deduction for the portion of your California DMV vehicle registration fee known as the vehicle license fee. If you claim itemized deductions on your income taxes, such as home mortgage interest, charitable contributions, and job related expenses; you can also claim a deduction for the California vehicle license fees you pay.

Let's say you buy a $20,000 car after the car tax increased on October 1st. Depending on where you live in California your DMV vehicle registration fee will be about $445. The $445 amount consists of an income tax deductible license fee of $400 plus other nondeductible fees of $45. Of course, your overall DMV registration fee can be different depending on the purchase price or value of your vehicle, county fees, district fees, personalized license plates, and how long you have had the car.

To figure the income tax savings, we'll assume you are in the 25% federal and 6% California income tax brackets. Your income tax savings from paying your vehicle license fee is $124 ($400 multiplied by 31% combined income tax rate).

So what's the bottom line? Because of the $124 income tax savings, the actual after income tax cost of registering the car in this example is $321 not the $445 check you wrote to the DMV.

For more tax related information, visit our website at www.turbotax.com.

PLEASE FEEL FREE TO PRINT ANY OF THE ABOVE INFORMATION FOR EDITORIAL PURPOSES

To schedule an interview with Fred Grant, contact:

Colleen Ferrin at 858-525-7487 or email at [e-mail].