Tax deduction allows US citizens to deduct any state and local general sales taxes. (Photo: Forbes)
The sales tax deduction allows US citizens to deduct any state and local general sales taxes they paid during the year.
If you want to use the sales tax, you can either deduct your state, local, and foreign income taxes or your state and local general sales taxes, but neither can be written off.
What exactly are tax deductions?
A tax deduction reduces your taxable income, lowering your tax liability. You deduct the amount of your tax deduction from your income, lowering your taxable income. Your tax bill will be lower if your taxable income is lower.
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Can I deduct sales tax?
You can only deduct your income or sales taxes if you itemize your deductions. In other words, you cannot deduct sales taxes if you use the standard personal deduction.
Each state or locality uses a different methodology to calculate your local optional sales tax deduction depending on what is taxed and how much it is taxed.
According to the IRS, “When the local tax base is the same as the state tax base, and there is only one local sales tax rate throughout the state – The local sales tax amount can be included with the state table using a combined rate on the same items.”
“When the local tax base is the same as the state tax base, but the local sales tax rates vary throughout the state – The local sales tax amount can be derived from the state amount using the ratio of the local rate to the state rate.
“When both the local tax bases and the local sales tax rates vary across the state, the local sales tax amount must be calculated separately from the state amount.”
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