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Can you really deduct state sales tax on your federal income tax return?
I bought my first house in early Nov and am trying to figure out a baseline for my taxes next year, 2011 tax return will be my first to itemize and I want to pay attention throughout the year to things I was unaware of. I read on the IRS website state income tax and sales tax are deductible for federal returns. I would have never thought income and sales taxes could be deductible. Am I reading this right? I plan on hiring a tax person for next year and sticking to turbotax this year since I don't have enough deductions to itemize. I live in CA if it makes a difference(my county is 9.25% sales tax). Any help will be much appreciated from the smart people as I try to make sense of all this. Should I be saving my daily receipts?
I didn't find a feature for inserting hyperlinks, but here is the IRS page.
8 Answers
- Wayne ZLv 71 decade agoFavorite Answer
If you itemize, you can deduct either your state income taxes OR your state sales taxes. You compare the two numbers and pick the highest one.
If you choose to deduct sales taxes you can either save all of your receipts for the year or just take the safe-harbor number based on your location and income. If you take the safe harbor number, you can add the sales taxe on large purchases (car, boat, etc.)
All that being said, my guess is that your state income taxes will exceed your state sales taxes.
- Steve DLv 71 decade ago
Income taxes (state) have always been deductible. For the last few years, you have been given the choice between claiming state/local income taxes or sales taxes - but not both. This usually works out when you have purchased a big ticket item such as a new car. However, in order to get the deduction, you have to itemize.
- Bostonian In MOLv 71 decade ago
You can deduct either state and local income taxes OR state and local sales taxes, not both. Obviously you'd deduct the larger of the two. For most CA taxpayers, that will be the state income tax.
There's a table in the Schedule A instructions that you can use for the sales tax deduction. You may use a larger amount if you have receipts to prove you actually paid more. If you use the table amount you may add the taxes for big-ticket items such as a car, boat, TV, plane, etc.
- JudyLv 71 decade ago
If you itemize, you can deduct state and local income taxes OR sales tax, not both. You'd take whichever is more. For the sales tax, you don't have to keep all your receipts, there's a flat rate table based on state, income and family size which gives you a number you can deduct without any receipts.
- Anonymous1 decade ago
Correct -- either/or.
Income tax deduction or sales tax deduction. The deduction is -- more or less -- a political "give-me" to those in very low/no income tax state and to select others with no real benefit to the state income tax deduction.
As a glorious resident of one of the highest income tax states in the land, the odds that the choice will benefit you are pretty close to zero.
- Anonymous5 years ago
You can deduct both. The choice is between using the real sales tax or an estimate of the sales tax you paid.
- troLv 71 decade ago
when you itemize, yes sales tax is one of the items in that section that can be claimed
you can follow the standard 'table' or if you keep all your receipts and that totals more than the standard, you can definitely claim the amount you can prove
- SlickterpLv 71 decade ago
One or the other. If you plan to possibly deduct sales tax, then you better keep EVERY receipt.