Tax Tip 2005-29, Feb. 10, 2005
If you itemize your taxes, you may choose to deduct state and local sales taxes instead of state and local income taxes. The American Jobs Creation Act of 2004 gives taxpayers this option for 2004 and 2005 tax returns.
IRS Publication 600, Optional State Sales Tax Tables, will help you determine your sales tax deduction amount in lieu of saving receipts throughout the year. Use your income level and number of exemptions to find the sales tax amount for your state. The table instructions explain how to add an amount for local sales taxes if appropriate.
You may also add to the table amount any sales taxes paid on:
A motor vehicle, but only up to the amount of tax paid at the general sales tax rate An aircraft, boat, home (including mobile or prefabricated), or home building materials, if the tax rate is the same as the general sales tax rate.
For example, the State of Washington has a motor vehicle sales tax of 0.3 percent in addition to the state and local sales tax. A Washingtonian who purchased a new car could add the tax paid at the general sales tax rate to the table amount, but not the 0.3 percent motor vehicle sales tax paid.
Claim the deduction on line 5 of Schedule A, checking a box to indicate whether the amount represents sales tax or income tax.
While this deduction will mainly benefit taxpayers with a state or local sales tax but no income tax — in Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming — it may give a larger deduction to any taxpayer who paid more in sales taxes than income taxes. For example, you may have bought a new car, boosting your sales tax total, or claimed tax credits, lowering your state income tax.
