The IRS allows for a deduction of sales and use tax paid as an option for those who itemize their deductions, letting them choose between deductions for state and local income taxes or state and local sales and use taxes. Taxpayers will indicate by using a checkbox on line 5 of Schedule A which type of tax they’re claiming.
Note: While this deduction will mainly benefit taxpayers without a state income tax as in: Alaska, Florida, Tennessee, New Hampshire, Nevada, South Dakota, Texas, Washington and Wyoming – it also gives a larger deduction to any taxpayer who paid more in sales tax than income tax. It can also impact any return if the Taxpayer had a large purchase with general sales tax.
What if I want to add my estimated tax?
Taxpayers also may add to their estimated tax, or the table amount, any sales taxes paid on these qualifying purchases:
- A motor vehicle (including a car, motorcycle, motor home, RV, sport utility vehicle, truck, van or off road vehicle) but include only the amount you would have paid up to the general sales tax rate.
- An aircraft or boat, but include the tax only up to the amount of tax for the general sales tax rate.
- A home (including a mobile home or prefabricated home ) or a substantial addition to or major renovation of a home up to the amount of the general sales tax rate.
- Also include any state and local general sales tax paid for a leased motor vehicle. Do not include sales taxes paid on items used in your trade of business.
What if I want to use my receipts?
The taxpayer has the option to save all of their receipts for the year and add up the amounts to gather their sales and use tax deduction. However, the IRS has created tables to give taxpayers a sales tax deduction amount as an alternative to saving their receipts throughout the year and tabulating the amount actually paid. Taxpayers can utilize two tables to calculate their alternative sales tax deduction. Using your income and the number of exemptions you are claiming on your Federal return you obtain the first part of the deduction from the 2023 Optional State & Certain Local Sales Tax Table. Then if your state qualifies, add to that amount the amount found on the 2023 Optional Local Sales Tax Tables for Certain Local Jurisdictions. The table instructions explain how to add an amount for local sales taxes if appropriate from the second table. Here is a link to the IRS tables: click here.
What if I want to use the IRS Sales Tax Calculator?
The other option is to use the IRS Sales Tax Calculator. This calculates the amount of your deduction for you. The Taxpayer will need to enter in the tax year, your income range, the number of exemptions being claimed on your return, the tax on any qualifying large purchases and the zip code for your resident address.
- Federal Section
- Select My Forms
- Itemized Deductions
- Taxes you Paid
- Sales Tax Worksheet
You will pull down the drop box and input the state that you reside in and the number of days you lived in that state during the tax year. Next, enter the amount of sales taxes you paid for qualifying large purchases * up to the % of sales tax at your regular rate. Then, input your state tax rate and local tax rate. This will return a value into your Federal return. If you have already entered in your State Income Tax, the system will automatically take the higher value of either your state income tax or state & local sales tax.
For more information on this topic please see the Schedule A Instructions.