IRS Tip: You Can Deduct State and Local Sales Tax

If you itemize your taxes, you may choose to deduct state and local sales taxes instead of state and local income taxes. The American Jobs Creation Act of 2004 gives taxpayers this option for 2004 and 2005 tax returns.

IRS Publication 600, Optional State Sales Tax Tables, will help you determine your sales tax deduction amount in lieu of saving receipts throughout the year. Use your income level and number of exemptions to find the sales tax amount for your state. The table instructions explain how to add an amount for local sales taxes if appropriate.

You may also add to the table amount any sales taxes paid on:

A motor vehicle, but only up to the amount of tax paid at the general sales tax rate
An aircraft, boat, home (including mobile or prefabricated), or home building materials, if the tax rate is the same as the general sales tax rate.

For example, the State of Washington has a motor vehicle sales tax of 0.3 percent in addition to the state and local sales tax. A Washingtonian who purchased a new car could add the tax paid at the general sales tax rate to the table amount, but not the 0.3 percent motor vehicle sales tax paid.

Claim the deduction on line 5 of Schedule A, checking a box to indicate whether the amount represents sales tax or income tax.

While this deduction will mainly benefit taxpayers with a state or local sales tax but no income tax — in Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming — it may give a larger deduction to any taxpayer who paid more in sales taxes than income taxes. For example, you may have bought a new car, boosting your sales tax total, or claimed tax credits, lowering your state income tax.

You may download Publication 600 or order it by calling (toll-free) 1-800-TAX-FORM (1-800-829-3676).

You may like these other stories...

As mentioned in today’s “Bramwell’s Lunch Beat” via an article from the USA Today, a new report from the Treasury Inspector General for Tax Administration (TIGTA) found that the IRS doled out $2.8...
London Stock Exchange switches auditing to EYThe London Stock Exchange will drop PwC as its auditor and replace it with EY after completion of the audit for the year ending March 2014, Harriet Agnew of the Financial Times...
With tax season in the past, it's time to think about the tax implications of decisions your clients may be making about their homes in 2014. The rules are complicated and because of the huge amounts involved, the...

Upcoming CPE Webinars

Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.
May 1
This material focuses on the principles of accounting for non-profit organizations’ expenses. It will include discussions of functional expense categories, accounting for functional expenses and allocations of joint costs.