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State and local sales taxes deductible when itemizing

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You have a choice between deducting state and local sales taxes or state and local income taxes. A prudent tax planner would obviously choose the larger of the two deductions.

The option to deduct state and local sales taxes benefits the residents of Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. These states don’t impose a state income tax.

You may claim this deduction by electing to deduct state and local sales taxes instead of state and local income taxes on Schedule A of your 1040 return.

You can calculate this deduction in two different ways. You can choose to:

  • Keep a copy of all of your sales receipts in which sales or use tax was charged, and total the amount of sales and use taxes paid during the year, or
  • Use the optional sales tax tables provided by the IRS in the instruction booklet to Schedule A.

Using the optional sales tax tables reduces your record-keeping burden and is generally the easier way to go. The tables provide an amount of sales taxes paid based on a number of factors, including state of residence, adjusted gross income and number of exemptions.

A nice benefit of using the optional sales tax tables is getting to deduct the amount of sales taxes determined by the tables, plus any state sales and local taxes paid on the following:

  • Motor vehicles
  • Boats
  • Aircraft
  • Homes, including mobile and prefabricated homes
  • Materials to build a home

The IRS provides taxpayers with an Internet tool to determine whether they might benefit by electing to deduct state and local sales taxes at www.irs.gov/Individuals/Sales-Tax-Deduction-Calculator.