2 Million US Taxpayers Overlook $4 BILLION in Sales Tax Deductions – Are You Leaving Money On The Table?

Believe it or not, over 2 million+ taxpayers don’t take the state sales tax deduction on their federal income taxes according to the U.S. Treasury Inspector General for Tax Administration. This amount is almost $4 billion in overlooked deductions each year … money left on the table that is rightfully due the taxpayers. Ouch!

Whether you use TurboTax, H&R Block Online, CompleteTax, go it alone with pencil and paper, or turn to a tax advisor, make certain you aren’t one of the 2 million people who leave almost $4 billion on the table! Hey! It’s YOUR money!

Sales Taxes Deductions

Seven states have no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two others, New Hampshire and Tennessee, tax only dividend and interest income. Alaska, Delaware, Montana, New Hampshire and Oregon don’t have a state sales tax.  Why is this important? Taxpayers are eligible to take a deduction for state and local sales tax OR state and local income tax (but not both).

If you’re living in a state that doesn’t have a state income tax, then you should make certain to investigate whether you’re eligible to deduct the sales tax that you pay each year to other jurisdictions. Both TurboTax and H&R Block Online’s software quiz you on utilizing this deduction.

Schedule A – Itemized Deductions

To be eligible to take this deduction:

  • You must itemize your deductions using Schedule A.
  • You must live in a state that has a sales tax or you can prove you’ve made purchases involving significant sales tax charges.
  • The amount of state and local income taxes you pay must be less than the sales tax deduction you’ll take on your taxes.

Actual Sales Tax Versus Calculated Values

Generally, there are two ways to calculate your sales tax deduction.

  1. Calculate your actual expenses by using receipts you’ve saved throughout the year.
  2. Rely on the sales tax tables found in IRS Publication 600 (not updated since 2006).

Using your actual receipt deductions is the preferred method if you made a large purchase such as a car, boat, or motor home and paid a large amount of sales taxes.

Alternatively, if you use the sales tax tables, you’ll notice there are only three variables that determine the amount of your deduction:

  • Sales Tax Rate – the higher the sales tax rate in your state, the larger the deduction you can take on your taxes.
  • Exemptions – the more exemptions you can claim on your income taxes, the larger the deduction you can take on your taxes.
  • Income – individuals with higher levels of income are entitled to larger sales tax deductions … rightly so.

Just make sure you take every deduction that is rightfully and legally yours to take.