Sales Tax Deduction

• The IRS permits an itemized income tax deduction for state and local sales taxes you pay during the year. Figure your sales taxes paid by adding together your receipts. You do not have to submit copies of your receipts with your income tax return, but you do need to keep records in case the IRS requests documentation for your deductions.
  
  

Estimated Sales Taxes Paid

• If you did not save all of your receipts, you can still claim the sales tax deduction because the IRS creates tables that estimate the sales taxes you paid during the year. The IRS also has an online sales tax estimation program that figures your estimated sales taxes paid based on your income, personal exemptions and where you lived. The drawback to using this method for calculating your sales taxes is you cannot include any large purchases. For example, if you bought a new van, you cannot add those sales taxes to the estimated sales tax results.
  
  

Can't Deduct Income Taxes

• When you itemize your deductions, if you claim the sales tax deduction, you forgo the state and local tax deduction. Examples of when you pay more sales taxes than you do state and local taxes include when you live in a state without an income tax or if you purchased a new vehicle or other equipment. If you paid more in state and local taxes, you should claim those taxes rather than your sales taxes when you itemize.
  
  

Claiming the Deduction

• All itemized tax deductions get reported on Schedule A. The sales tax deduction goes on line 5. When you choose to deduct sales taxes rather than state and local taxes, you have to check box 5b so the IRS knows which deduction you opted to take. Any time that you itemize, you forgo the standard deduction, so make sure your sales tax deduction, when combined with your other itemized deductions, exceeds the value of your standard deduction.