July 25, 2008, Newsletter Issue #126: State Sales Tax Deductibility

Tip of the Week

Thanks to the American Jobs Creation Act of 2004, taxpayers have the option in tax years 2004 and 2005 to garner a tax cut by claiming state tax deductions on Line 5 of Schedule A. State tax deductions that can be claimed are the higher of either state sales taxes or state and local income taxes paid. While these personal tax deductions are likely to be more beneficial to residents of states that have a sales tax but no income tax, if you live in a state with both income and sales tax and made big-ticket purchases during the year, you could come out ahead by claiming the sales tax deduction rather than the income tax deduction. Didn't save your sales receipts or don't feel like wading through a ream of them? Don't despair. IRS Publication 600, Optional State Sales Tax Tables, will help you figure out your allowed sales tax deduction in lieu of working off receipts.

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