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Deducting Sales Taxes

Lavelle & Finn


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.