Deducting Sales Tax: What You Need to Know

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As the tax season draws near, it’s important to understand which expenses you can and cannot deduct. One of the less commonly understood deductions is related to sales tax. Here’s what you need to know.

Deducting Sales Tax: What You Need to Know

How Does It Work?

The IRS allows taxpayers to either claim a deduction for state income tax or state sales tax paid during the fiscal year. Therefore, if you live in a state that does not levy an income tax (e.g., Florida), but has a high sales tax rate (typically 7% or more), you may be able to take advantage of this deduction.

Which Expenses Qualify?

It’s worth noting that not all purchases qualify for this deduction. The expenses must meet certain criteria:

  • They must have been incurred within the same fiscal year as your federal return.
  • They must have been for personal consumption rather than business use.
  • They must be larger than your standard deduction ($12,400 for individuals and $24,800 if married filing jointly).

Also note that certain items, such as food and prescription medication are often exempt from sales taxes regardless of where they were purchased.

Should You Take This Deduction?

If you’re someone who makes large purchases each year – such as a car or boat – then taking advantage of the sales tax deduction could significantly reduce your overall taxable income. However, if you don’t make substantial purchase throughout year its less likely that it would benefit your finances greatly compared with other available deductions such as standard deductions.

Remember that whether you choose to deduct income or sales taxes, keep accurate records over time so documentation relating expense with proof should always be at hand in order sustain support any claims made on a return form.

Keep these guidelines in mind when filing your next return; doing so could save hundreds or even thousands of dollars!


Q: Can I deduct sales tax on my federal income tax return?
A: Yes, you can. The IRS allows taxpayers to choose between deducting state and local income taxes or state and local sales taxes on their federal income tax return. You can use the actual amount of sales taxes you paid or an optional IRS table based on your income, family size, and state of residence to calculate your deduction.

Q: Are there any limitations on how much sales tax I can deduct?
A: The amount of sales tax you can deduct is subject to certain limitations imposed by the IRS. For example, if you use the optional IRS table method for calculating your deduction, it caps out at a certain amount depending on your income level and state of residence. Additionally, if you made large purchases such as a car or boat that were subject to excise taxes in addition to sales tax, those additional taxes may not be fully deductible.

Q: Can I claim both state and local income taxes AND state and local sales taxes as itemized deductions?
A: No – taxpayers must choose one or the other when claiming itemized deductions for their taxable year. However, it’s important to note that if you live in a state with no income tax (such as Texas) but have significant purchases subject to state and local sales tax during the year – this option could potentially result in larger total deductible amounts compared to claiming State & Local Income Taxes deduction instead