Deducting Sales Taxes

July 7, 2016

Taxpayers who itemize deductions on Schedule A of IRS Form 1040 can deduct some state and local tax payments from their income. Among the formerly impermanent tax deductions that are now permanent is the option to deduct sales instead of income taxes.

Example: Marge and Nick Palmer always itemize deductions on their joint tax return. Generally, the Palmers deduct the state income tax they pay. In 2015, though, their income fell, and so did the state income tax they paid. The Palmers also have made some large purchases, paying steep amounts of sales tax. For 2015 and future years, the Palmers can deduct the sales tax they paid instead of the state income tax they paid, if the amount of sales tax exceeded their income tax.

This tax provision obviously helps people who live in a state  with no income tax; other taxpayers also may benefit. A taxpayer may deduct the actual amount of sales taxes paid during the year or, alternatively, may use tables created by the IRS to determine the allowable deduction. If a taxpayer uses the tables to determine the deduction, he or she can add the tax paid on certain items (cars and boats, for example) to the amount from the IRS tables.