Tax Facts

Electing to Deduct Sales Tax

The election to deduct sales tax on your tax return only applies to taxpayers who itemize their deductions. Normally, if you're itemizing, you should hire a licensed tax professional to prepare your taxes for you. Itemizing can quickly become complex, involve more details in the preparation process, involve strategy for maximizing deductions and minimizing tax and most importantly take up lots of your time.

If itemizing, you have a choice to deduct state and local sales tax rather than state and local income taxes. If you choose to deduct state and local sales tax you can deduct actual sales tax amounts (based upon your receipts and records) or use a predetermined amount from an IRS table that is based on your adjusted gross income (AGI). The key here is making sure you use an accurate number for your AGI.

One example is with retired military taxpayers. If they are receiving non-taxable income such as disability income, that should be added to the adjusted gross income to arrive at the amount used to determine the deduction. Disability pay is not reported on the tax return (because it's not taxable) and therefore this is an item that can often be overlooked. Other items that should be added in are any tax-exempt income you had, and that portion of Social Security that is not taxed (which for everyone receiving Social Security benefits is at least 15% of the benefit amount).

There are a number of other factors to consider to ensure you get all the legal deductions you are allowed, and that's why it's a good idea to hire someone familiar with tax law to prepare the tax return for you. Hire a licensed professional such as an Enrolled Agent (licensed by the IRS), a CPA or a tax attorney. Consider that you may save more on taxes than you pay a licensed preparer. Even if you come out even, at least you didn't have to spend the time preparing your taxes and researching tax law.

Medical Expenses: 10% Floor for All in 2017
Where are State and Local Taxes Deducted?

Related Posts

Click for the BBB Business Review of this Taxes - Enrolled Agent in Melbourne FL

1000 characters left