"You're more likely to have kept receipts for these items for insurance purposes or because they were mind-boggling," says Bob D. Scharin, senior tax analyst from the Tax and Accounting business of Thomson Reuters. "Basically, you're looking for spending that's disproportionate to your income."
Most filers, however, will claim the amount that the IRS has figured for them in special sales tax tables; one for each applicable state. The deduction amounts are based on the average consumption by taxpayers, taking into account filing status, number of dependents, adjusted gross income and rates of state and local general sales taxation.
The IRS tables with standard sales tax deduction amounts can be found in the Schedule A instructions. The IRS also offers an online sales tax deduction calculator.
Counting all your income
But even with the tables, it's not quite that simple. In using the data, you need to keep a couple of things in mind to get the biggest deduction.
First, don't rely solely on your 1040 information when you read the table. The figure you enter on your federal return is taxable income, but Scharin says that the sales tax table amounts are based on total income, not just your adjusted, taxable income. You should take nontaxable income amounts into account for sales tax deduction purposes, he says, because the larger your total income, the larger your sales tax deduction.
These other types of income include municipal bond or other tax-exempt interest, workers' compensation, nontaxable combat pay, the nontaxable portion of Social Security and other retirement benefits, as well as the nontaxable parts of an IRA, including a Roth IRA distribution.
Also, most of the tables only cover the state rates. "If you have a local sales tax, which many people don't realize, you could be sacrificing some of the deduction if you use only the table amount," says Scharin.
To account for local sales taxes, you're going to have to do some extra calculating. If you're not using tax software, a work sheet, also in the Schedule A instructions, will help you determine the correct number.
You also could have some extra math to do if you lived in different states that collected sales taxes. In this case, you must determine each state's sales tax amount to arrive at your appropriate, combined deduction.
Sales taxes you paid on the purchase of motor vehicles, boats, aircraft and, in some cases, building materials for a substantial addition to or renovation of an existing structure also can be counted on top of your sales tax table and local tax amounts. These additional amounts will be accounted for in the previously mentioned sales tax work sheet.
While all these considerations will definitely mean more work for some taxpayers, Scharin says, "If you went this far and you're itemizing, you might as well get your full deduction."
Deduction expiration date
While the deduction for state and local income taxes is a permanent part of the tax code, the sales tax option is temporary.
It is available for 2014 tax returns, but Congress must renew it again in order for the tax break to apply to the 2015 tax year.
This is a popular tax break, especially for residents in Texas and Florida, states with large populations and no income taxes. There also is a possibility that as part of tax reform, the sales tax deduction could be made permanent.
Keep an eye on Congress and keep collecting those sales receipts.