Is Sales Tax Deductible As an Itemized Deduction?
In the past, the Internal Revenue Service allowed taxpayers to deduct state and local sales taxes on their tax returns. This deduction expired as of December 31, 2011. You won't be able to claim a deduction for sales taxes for your 2012 federal income tax return and going forward, but you can still claim a deduction for sales taxes paid during previous years by filing an amended return.
Sales Taxes vs. State Income Taxes
The optional state and local sales tax deduction was implemented to provide tax relief for taxpayers who lived in states that did not have a state income tax. Taxpayers who itemized their deductions could choose between deducting either their state and local sales taxes or their state and local income taxes. While the deduction for state and local income taxes remains available, the option to deduct state and local sales taxes is not be available for the 2012 tax year unless Congress votes to extend this tax break.
Sales Taxes Options
The IRS offers two options for deducting your state and local sales taxes through the 2011 tax year. You can total up the amount of sales taxes you paid and deduct that amount, provided you saved your receipts. If you didn't save your receipts, you can still take the sales tax deduction by using the IRS's sales tax calculator, which is based on your income and number of exemptions. If you use the IRS's sales tax calculator, you can add to that total sales taxes you actually paid on certain big-ticket items, such as a car, boat, aircraft or home, as long as you have a record of those big purchases.
Home Sales Tax
Prior to 2012 you could include the sales taxes you paid when you bought your home with your itemized deductions. That tax break is no longer available, but if you bought a home after December 31, 2011, you can add the amount of sales taxes to your home's purchase price to increase your home's cost basis. While this doesn't give you any immediate tax relief, it reduces the amount of any future capital gains taxes you owe if you sell your home for a profit.
Amended Returns
If you made a major purchase during the past three years and you didn't claim the sales tax deduction, you still have time. You can file an amended federal income tax return for up to three years after the due date of the original return. Run the figures by adding your sales taxes to your itemized deductions for those years to see if you would get a lower tax obligation or qualify for a larger tax refund. If you do, file an amended return using Form 1040X.
References
- Congressional Research Service: An Overview of Tax Provisions Expiring in 2012
- IRS: Like Share Print Six Facts about Choosing the Standard or Itemized Deductions
- IRS: Tips and Guidance for Determining Sales Tax Deduction
- IRS: Sales Tax Deduction Calculator
- IRS: Topic 503 - Deductible Taxes
- IRS: Extension of Time To File Your Tax Return
- IRS: Topic 308 - Amended Returns
- IRS: Publication 530, Tax Information for Homeowners -- Sales Taxes
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Writer Bio
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.