What Sales Tax Can I Deduct on My Federal Taxes?

The sales tax deduction allows taxpayers to reduce their federal tax liability by subtracting the amount of sales tax paid throughout the year. This deduction is part of the broader state and local tax (SALT) deduction, which reduces your taxable income on your federal return. Taxpayers can deduct either state and local sales taxes or income taxes.

Understanding Eligibility and the Deduction Choice

Eligibility to claim the sales tax deduction is limited to taxpayers who itemize their deductions on Schedule A of Form 1040. Most taxpayers opt for the standard deduction, but if your eligible expenses, including sales tax, exceed the standard deduction for your filing status, itemizing is more advantageous. For example, the 2024 standard deduction is $14,600 for single filers, $21,900 for heads of households, and $29,200 for married couples filing jointly.

Taxpayers must choose between deducting state and local income taxes or state and local sales taxes; both cannot be claimed in the same tax year. The total amount deductible for state and local taxes, including sales tax, is capped at $10,000 for most filers, or $5,000 for married individuals filing separately. This cap was established by the Tax Cuts and Jobs Act of 2017 and is set to expire after 2025.

The choice between sales tax or income tax deduction depends on your state of residence and purchasing habits. For instance, individuals in states without a state income tax will find the sales tax deduction their only option. These states include:

• Alaska
• Florida
• Nevada
• New Hampshire
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

Taxpayers who made significant purchases, like a new vehicle or boat, might find their total sales tax paid exceeds their state income tax liability, making the sales tax deduction more beneficial. Conversely, if you reside in a state with high income taxes, deducting state income taxes will likely provide a greater tax advantage.

Calculating Your Sales Tax Deduction

There are two methods for calculating your sales tax deduction: tracking actual expenses or using the optional sales tax tables provided by the IRS. The chosen method depends on your record-keeping and purchase volume. You can use either method for a given tax year, and change it in subsequent years.

Actual Expenses

You can deduct the actual amount of sales tax paid throughout the year. This method requires meticulous record-keeping. You must retain receipts or other documentation for all purchases to accurately total the sales tax paid, including general sales tax and sales tax on certain large purchases.

Large purchases for which sales tax can be included often include:

• Motor vehicles
• Aircraft
• Boats
• Building materials for a home or substantial renovation

If the sales tax rate on these items is higher than the general sales tax rate in your area, you can only deduct the amount of tax that would have been paid at the general sales tax rate. Sales taxes on food, clothing, and medical supplies are also deductible as general sales tax, even if subject to a lower rate.

IRS Sales Tax Tables

As an alternative to tracking every receipt, the IRS provides optional sales tax tables. These tables allow taxpayers to estimate their sales tax deduction based on their adjusted gross income (AGI), family size, and state of residence. The tables provide a base amount for the sales tax deduction, approximating average consumption patterns.

Even when using these tables, you can add the actual sales tax paid on certain large purchases, such as:

• Motor vehicles
• Aircraft
• Boats
• Building materials for a home or substantial renovation

To use the tables, locate your state, then find the intersection of your income and family size to determine the base deduction amount. Add the sales tax from your qualifying large purchases to this table amount. The IRS also offers an online Sales Tax Deduction Calculator.

Required Documentation and Reporting on Your Tax Return

Proper documentation supports your sales tax deduction, regardless of the calculation method. If deducting actual sales taxes, keep all receipts showing the sales tax amount. For large purchases, retain invoices or sales agreements detailing the sales tax paid. If using the IRS sales tax tables, keep records of your income, family size, and receipts for any qualifying large purchases added to the table amount. Keep these records for at least three years from the date you filed your original return or two years from the date you paid the tax, whichever is later, in case of an IRS inquiry.

The sales tax deduction is claimed on Schedule A (Form 1040), Itemized Deductions, under “Taxes You Paid.” Report your state and local sales tax deduction on line 5a. When entering the amount, check the box on line 5a to indicate you are electing to deduct general sales taxes instead of state and local income taxes.