Bankrate's 2009 Tax Guide
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Purchases can help cut your tax bill

For example, couples who file jointly and don't have other things to itemize will be better off using the standard deduction. Otherwise, they would have had to have gone on a major spending spree last year (and kept all the receipts) to accumulate more than $10,900 in sales taxes to exceed their standard deduction amount.

Picking the proper tax to claim 
Some taxpayers, though, do find the sales tax deduction worthwhile enough to warrant itemizing and claiming the added amount. And that means a bit of extra, and possibly unfamiliar, tax work.

"Some people, especially in states with no income tax, might find that this is the first time they've ever had to go to the long form and Schedule A to file," says Bob D. Scharin, senior tax analyst from the Tax and Accounting business of Thomson Reuters.

These itemizers must now also answer question No. 2: Should you deduct your sales taxes or income taxes? In its pre-1986 incarnation, filers could claim both of these tax amounts. Now it's an either-or decision; you cannot take both deductions and must note on Schedule A which tax you're claiming.

"If you live in a state with no income tax, you're clearly better off claiming the sales tax," says Scharin.

And if you do pay both types of taxes, don't automatically assume that your income tax break is going to be bigger. "If you live in a state with both, you can -- should -- look at both," says Scharin. "Some states offer generous income tax exclusions for retirement income. In New York, for example, pensions for state and city employees are not taxed at the income tax level. It's the same situation for disability pensions. You need to look and see exactly how much state income tax you're paying."

In some cases, the sales taxes paid could actually be more than state income taxes collected, says Mark Luscombe, principal tax analyst at CCH Inc., a Riverwoods, Ill.-based provider of tax law information and software.


"Yes, it could happen," says Luscombe. "Here in Illinois, for example, we have a 6.25 percent sales tax rate and it's higher in some counties, while there is a maximum income tax rate of 3 percent. And the income tax allows for some deductions and credits. So in an individual case, especially in a year with significant purchases, an Illinois resident could find that they could save more by claiming sales taxes."

Writing off the right amount 
Then there's the issue of just how much in sales taxes you can claim. If you have the documentation, there is no limit on the deduction amount.

Even if you don't have all your receipts, you still might be able to recreate many of your sales tax payments. William Abrams, a partner in the law firm Abrams Garfinkel Margolis Bergson LLP, with offices in California and New York, notes that many types of records, such as credit card statements, are available online. By accessing them, he says, taxpayers could improve the accuracy of their annual sales-tax computations.

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