Feb 20, 2022
If you paid to state and local general sales tax, you could deduct it on your tax return. If you paid state and local income tax, you could deduct it. You cannot do both.
Taxpayers can lower their taxable income by deducting either their state and local sales taxes or their state and local income taxes from their 2021 taxable income, but not both at the same time.
Since federal taxes were implemented in 1913, the deduction for state and local income taxes has been in place. Even though this deduction was first introduced about 30 years later, it has undergone several revisions over the years.
Whether the person claims state income tax or state sales tax, new legislation enacted into law by the Trump administration in late 2017 has capped the deduction at $10,000. No limit was previously in place. For example, if your 2021 sales taxes were $3,000 and your property taxes were $11,000, you may only deduct $10,000.
In 2021, the normal sales tax deduction for single filers was $12,550. The deductible is $25,100 if you and your spouse are filing jointly. This is an increase from the standard deduction of $12,400 and $24,800, respectively, for the tax year 2020.
Your local sales tax rate is the only limit on how much you can deduct from your gross income when filing your taxes with the Internal Revenue Service (IRS). Food, clothes, and medical supplies are all exempt from the ban on international trade in these items.
It doesn't matter how much you paid in sales tax if you're still able to deduct the actual amount you spent. This includes big-ticket expenditures, such as an engagement ring or wedding expenses, as long as you kept account of all your purchases and the sales taxes you paid during the year.
Decide whether to take the standard deduction or itemize your deductions first. You can't deduct sales tax from your taxable income if you opt to use the standard deduction instead.
It's best not to itemize at all if your itemized deductions don't exceed the standard deduction amount when totaled. Individual charity donations, losses from a federal catastrophe, mortgage interest, and medical and dental expenditures above specific criteria are examples of expenses that can be itemized.
It's up to taxpayers to decide whether to take the state and local income tax deduction (SALT) or a lower state and local sales tax deduction (SALT). State and local sales taxes are usually more expensive than state and local income taxes, but it's a good idea to add up both sorts of costs and compare them.
Here are the procedures you need to perform to deduct your sales tax.
Tax deductions can be claimed on the Schedule A form. The IRS's optional state sales tax tables may be found at the bottom of this form's instructions. Another sales tax chart is located at the bottom of the page. The spreadsheet in those instructions also helps you compute the tax in other circumstances.
Either keep all of your receipts for every transaction you make during the year or use the IRS's sales tax calculator to estimate your savings. For the most part, using the official IRS calculator will save you time and money.
Use the IRS's optional state sales tax tables to establish your exact income level if you took any income in 2021. If you have a Roth IRA or municipal bond interest that is tax-free or if you receive veteran's benefits or the non-taxable component of your social security, you may sum up all of your non-taxable income like that. The IRS data show that the more money you make the more money you spend on sales taxes.
Don't forget to include the sales taxes you paid for significant purchases, such as a car, boat, or a house, in addition to the estimated sales taxes you paid in your state. Schedule A's guidelines go into further depth on this.
The Internal Revenue Service (IRS) assumes that you will utilize all available tax deductions. Choose to deduct state and local taxes if itemizing spending is the best choice for you.
This will provide you with larger tax savings. In the event of an audit, retain your receipts for big-ticket purchases and all of your sales receipts in case you've taken the time to keep track of real sales taxes paid in 2021.
Although Congress can renew, abolish, or enhance the $10,000 ceiling on state and local tax deductions at any time after the 2025 tax year, the cap is due to expire after that year.