How to Choose Your Deduction: State and Local Income OR Sales Taxes

If you choose to itemize when you file your income taxes, you can choose to claim a deduction for either state and local income taxes paid, OR state and local sales taxes paid. Most tax software asks you to input this information and automatically chooses the largest amount for you.

Difficulty: Moderately Easy

Instructions

1. State and Local Income Taxes Paid
   
   When determining which of the two taxes to claim this amount is often the easiest to determine. Look back at your tax returns for the previous year and see how much you paid.

2. State and Local Sales Taxes Paid - Large Purchases
   
   If you made a large purchase during the tax year, this can easily be the most lucrative option. If you bought a car, boat, motorcycle, or any other large purchase saving your receipt can allow you to take this deduction.

3. State and Local Sales Taxes Paid - Daily Expenses
   
   In a year that you opt to claim the sales tax deduction, you can claim an estimated amount for additional sales tax paid throughout the year. The IRS has a sales tax deduction calculator specificly for this purpose. A link to this calculator is in the resource section below.
   
   Begin by entering your annual income and number of tax exemptions claimed. The tax calcultor will ask you for the amount sales tax paid on any large, one time purchases mentioned in the step above. It will then ask for your zip code to determine your local sales tax rate. It will then determine the amount of additional sales tax deduction you are allowed to claim.

Resources

• IRS Sales Tax Calculator