If you made a big purchase or live in a state or locality that charges high sale taxes, you might be able to parlay those costs into a lower tax bill when you file your federal return. The deduction is especially beneficial if you don't have state income taxes to deduct, but it might be coming to an end after the 2013 tax year.
Figuring Your Deduction
If you're claiming your state and local sales taxes on your federal tax return, you can figure your deduction in one of two ways. First, you can keep all your receipts for the year and total up the sales taxes you paid during the year. Second, and much easier, is use the Internal Revenue Service's Sales Tax Deduction Calculator, which figures your deduction based on where you live, your income and the number of dependents you claim. If you have all your receipts, you can check both numbers and use the higher amount.
Income or Sales Tax, No Both
You're allowed to deduct either your state and local income taxes or your state and local sales taxes, but you can't claim both of them. If you're not sure which will save you more, total your state income taxes paid during the year, including money withheld from your paycheck, and compare it to your sales tax deduction, either from your receipts or from the IRS's Sales Tax Deduction Calculator. But, if you live in a state with no income taxes, it's a no-brainer to deduct your sales taxes.
The sales tax write-off is an itemized deduction, which means you can only claim it after giving up your standard deduction and filing Schedule A. On Schedule A, the deduction goes on line 5, but you also have to check the box next to 5b to inform the IRS that you're claiming state and local sales taxes rather than state and local income taxes. This deduction gets combined with your other itemized deductions and the total replaces your standard deduction on line 40 of your Form 1040 tax return.
The deduction for state and local sales taxes expired at the end of the 2013 tax year and, as of the time of publication, has not been renewed for the 2014 tax year. That means, barring further action from Congress, that you will no longer be able to choose to deduct state and local sales taxes on your 2014 tax return.
Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."