Sales Tax Deduction Option, State and Local

[vc_row][vc_column][vc_column_text]

Sales Tax Deduction Option, State and Local

The Tax Relief and Health Care Act of 2006 extended the election to deduct state and local general sales taxes for 2006. The act was enacted after Schedule A (Form 1040), Itemized Deductions, and its instructions were printed. Because we were not able to include the instructions for figuring the deduction in the Schedule A instructions, we are providing this publication to help you figure this deduction.

You can elect to deduct state and local general sales taxes instead of state and local income taxes as a deduction on Schedule A. You cannot deduct both. To figure your deduction, you can use either:

  • Your actual expenses, or
  • The optional sales tax tables plus the general sales taxes paid on certain specified items.

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

Taxpayers also may 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; and
  • 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 Washington state resident 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.

Taxpayers will 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.[/vc_column_text][/vc_column][/vc_row]

Posted in
Keith Kitani

Disruptive HR Models | Keith Kitani

About Keith Kitani Keith Kitani is the founder and CEO of GuideSpark. He’s a successful entrepreneur and software executive with over 20 years of experience building technology companies. He has been building Software-as-a-Service (SaaS) products and businesses since 1999 when he co-founded Presedia (a rapid eLearning company) and sold it to Macromedia in 2003. At…

Dirk Lorenz

Maintaining Relevance | Dirk Lorenz

About Dirk Lorenz Dirk Lorenz ventured out and acquired Fremont Flowers while only 21 and has owned and operated the business for over 25 years. Dirk takes pride in giving back to the community and has started several events at Fremont Flowers over the years such as Good Neighbor Day and Welcome Teacher Day. Dirk…

Dr. Hal Heaton

Is the Market OverValued? | Hal Heaton

  About Hal Heaton Hal Heaton is a Professor of Finance at the BYU Marriott Graduate School of Business where he teaches advanced courses in finance and capital markets. Before joining the faulting at BYU, Hal worked at Boston Consulting where he dealt with strategic planning issues for large firms. He has also served on…

Jim Castelez; The Excitement of Starting Companies

The Excitement of Starting Companies | Jim Castelez

  About Jim Castelez Jim Castelez is the founder and CEO of Motiv Power Systems; a company that works to retrofits diesel trucks into electric vehicles. Before he founded Motiv Power Systems, Jim worked as Chief Architect at an EV start-up focused on designing electric buses. Jim received a BS in Engineering and Economics from…