The sales tax deduction is one of the little-known deductions available to individuals. Because taxpayers must choose between claiming the sales tax deduction or the state income tax deduction, most tend to claim their state taxes. In some cases, though, claiming the sales tax deduction may result in a lower tax bill.
What sales taxes can be deducted?
The IRS allows taxpayers to claim any sales tax they pay in their home state for any reason. All you need to do is keep records of all your sales tax receipts during the year so that you can provide documentation to the IRS in case of an audit. This deduction can be particularly beneficial to those who live in states where there is no income tax.
Claiming the sales tax deduction may even be advisable for those who could claim the state income tax deduction. Since taxpayers won’t have to include their state income tax refund as taxable income if they don’t deduct the tax paid, using the sales tax deduction instead of the state tax deduction may save mo-ney in the long run.
Claiming the sales tax deduction
To calculate the amount of your sales tax deduction, you can either add up your total sales tax paid during the year or you can use the IRS sales tax calculator to approximate the amount of tax you paid based on your purchases.
Because the sales tax deduction is reported on Schedule A, you’ll have to itemize your deductions in order to use it. For most taxpayers, it’s only advisable to itemize deductions if your total deductions are higher than the standard deduction for your filing status. Be sure that you calculate your return using both the standard deduction and your itemized deductions and then choose the method that gives you the highest refund.
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