Sales Tax Recovery

The IRS 1040 form provided an option to deduct eligible sales tax payments.

The recovery of sales tax as a tax deduction represents a common tax credit those who made large purchases enjoyed through 2009. Subsequently, the tax credit expired and will result in higher income taxes for purchases beginning in 2010.

Background

Sales tax paid on purchased items provided a deductible expense that could be used to reduce one's tax liability on federal income tax filings. The deduction was allowed and filled out in detail on an Internal Revenue Service Schedule A form. However, this tax credit expired in 2009 and 2010 tax filers will not have the option to use this credit.

Eligibility

Under federal tax law, a filer deducts either state and local taxes for income or chooses to use sales tax paid; the filer can't claim both deductions in the same tax year. For those who have little income tax exposure but big purchases in a given tax year, the sales tax deduction provided a tax credit.

Significance

Those affected the most in 2010 likely include vehicle and boat buyers. Being one of the most common big purchases people make, the car sales tax paid after 2010, absent Congressional action, will no longer be deductible.

References

• Bankrate: State Sales Tax Can Still Cut Your IRS Bill
• Turbotax: Summary of Federal Tax Law Changes 2010-2017
• Kiplinger's Finance: The Most-Overlooked Tax Deductions