When you itemize deductions, the IRS allows you to deduct either your state and local income taxes or your state and local sales taxes, but not both. In most cases, our software automatically chooses the option that provides the greater tax benefit. However, there are situations where you may want to force the program to use the sales tax deduction instead.
When Forcing the Sales Tax Deduction May Make Sense
You may benefit from choosing the sales tax deduction if:
- You live in a state that does not have a state income tax.
- You made a large purchase during the year, such as a car, boat, motorcycle, or RV, and paid substantial sales tax on that purchase.
- Your actual sales tax paid is higher than your state income tax withholding, which could result in a larger itemized deduction.
Even if the software calculates a larger deduction using state income taxes, you can still choose to use the sales tax deduction if you prefer.
How to Force the Sales Tax Deduction
To have the program use the sales tax deduction instead of state income taxes:
- Go to Federal.
- Select Deductions.
- Choose Select my forms
- Open Itemized Deductions.
- Select Taxes You Paid.
- Choose Sales Tax Deduction.
- Click + Add sales tax you paid.
- Check the box labeled "I want to deduct sales tax instead of income tax, even if it lowers my refund (less common)."
Once selected, the program will use the sales tax deduction method when calculating your itemized deductions.
What Information Will I Need?
ZIP Codes and Days Lived There
To calculate your estimated sales tax deduction, you'll need:
- The ZIP code(s) where you lived during the tax year.
- The number of days you lived in each location.
If you moved during the year, enter each ZIP code and the corresponding number of days you lived there.
Sales Tax on Large Purchases
If you made a major purchase during the year, you can add the sales tax paid on that item to your deduction calculation.
Examples include:
- Cars
- Boats
- Motorcycles
- RVs
- Other qualifying large-ticket purchases
Enter only the sales tax amount paid, not the purchase price.
Actual Sales Tax Paid
If you tracked your sales tax expenses throughout the year and know the exact amount you paid, you can use the override option to enter your actual sales tax amount instead of using the program's estimate.
If you choose this method, keep copies of your receipts and records in case the IRS requests documentation to support your deduction.
Should I Use the Estimated Amount or Actual Sales Tax Paid?
Most taxpayers use the calculated amount because it's simpler and requires less recordkeeping. However, if you've saved receipts and your actual sales tax paid exceeds the estimated amount, entering the actual total may provide a larger deduction.
The best option is generally the one that gives you the greatest overall itemized deduction while being supported by your records.