How to Write Off Sales Tax With Itemized Deductions
Optimize your federal tax return by understanding how to leverage sales tax as an itemized deduction. Reduce your taxable income effectively.
The sales tax deduction allows taxpayers to reduce their taxable income on federal returns by accounting for sales taxes paid throughout the year. This can lead to a lower tax liability.
Eligibility for the Deduction
Claiming a sales tax deduction requires taxpayers to itemize their deductions on Schedule A of their federal income tax return, rather than taking the standard deduction. The standard deduction is a fixed amount provided by the Internal Revenue Service (IRS) based on filing status. For 2025, standard deduction amounts are $15,000 for single filers and married couples filing separately, $30,000 for married couples filing jointly, and $22,500 for head-of-household filers.
Taxpayers should itemize only if their total eligible itemized deductions, including the sales tax deduction, exceed their applicable standard deduction amount. If the sum of itemized deductions is less than the standard deduction, taking the standard deduction typically results in a greater tax benefit.
Choosing Your Deduction Method
Taxpayers have two primary methods for calculating their sales tax deduction: deducting the actual sales tax paid or using the IRS sales tax tables. Each method has specific requirements and benefits, and the choice often depends on an individual’s purchasing habits and record-keeping practices.
When opting to deduct actual sales tax paid, taxpayers must track all state and local sales taxes incurred throughout the year. This method allows for the deduction of sales tax on everyday purchases. Additionally, sales tax paid on specific large purchases can be included. These large purchases typically encompass motor vehicles, such as cars, trucks, vans, motorcycles, and recreational vehicles, as well as aircraft and boats. Sales tax paid on materials for a substantial addition or major renovation to a home also qualifies for this deduction.
Alternatively, taxpayers can use the IRS sales tax tables, which provide a standard sales tax amount based on their state of residence, income level, and family size. These tables are found in the instructions for Schedule A. Using the tables simplifies the calculation process, and taxpayers can still add the actual sales tax paid on qualifying large purchases to the table amount.
Important Considerations and Limitations
The State and Local Tax (SALT) deduction cap is a limitation affecting the sales tax deduction. This cap limits the total amount of state and local taxes, including property taxes, state income taxes, and sales taxes, that a taxpayer can deduct on their federal return. For most filers, this limitation is set at $10,000 per household. This cap applies regardless of whether a taxpayer chooses to deduct actual sales tax paid or uses the IRS sales tax tables. Recent legislation, the “One Big Beautiful Bill Act,” temporarily raises this cap to $40,000 for 2025, with a 1% increase each year through 2029 before reverting to the $10,000 limit in 2030.
Taxpayers must also decide between deducting state and local income taxes or state and local sales taxes; they cannot deduct both. This choice is important because the deduction for property taxes can be claimed in addition to either income or sales taxes, up to the overall SALT cap. Typically, if an individual’s state income tax liability is higher than the sales tax paid, deducting income tax is more advantageous. Conversely, if a taxpayer lives in a state with no income tax or made substantial purchases subject to sales tax, deducting sales tax may provide a greater benefit.
Record Keeping for Sales Tax Deduction
For taxpayers who choose to deduct the actual sales tax paid, maintaining comprehensive records is important. The IRS requires sufficient documentation to substantiate the claimed deduction. This includes keeping original receipts from all purchases that incurred sales tax throughout the year.
For large purchases, such as vehicles or home building materials, invoices or sales contracts detailing the sales tax amount are necessary. Credit card statements or bank statements can serve as supporting evidence for sales tax payments, especially when combined with receipts. These records should be organized and retained for a minimum of three years from the tax return’s due date or filing date, whichever is later, to be available in case of an IRS inquiry or audit.