Did you know that you may be able to deduct certain taxes on your federal income tax return? You can receive these deductions if you file Form 1040 and itemize deductions on Schedule A. Deductions decrease the amount of income subject to taxation.

There are several types of deductible non-business taxes:

• State and local income taxes: You can choose to claim a state and local tax deduction for either income or sales taxes on your return. You can deduct any estimated taxes paid to state or local governments and any prior year's state or local income tax as long as they were paid during the tax year. If deducting sales taxes instead, you may deduct actual expenses or use the optional tables provided by the IRS to determine your deduction amount, relieving you of the need to save receipts. Sales taxes paid on motor vehicles and boats may be added to the table amount, but only up to the amount paid at the general sales tax rate.
• Real estate taxes: Deductible real estate taxes are usually any state, local or foreign taxes on real property. If a portion of your monthly mortgage payment goes into an escrow account and your lender periodically pays your real estate taxes to local governments out of this account, you can deduct only the amount actually paid during the year to the taxing authorities. Your lender will normally send you a Form 1098, Mortgage Interest Statement, at the end of the tax year with this information.
• Personal property taxes: Personal property taxes are deductible when they are based on the value of personal property, such as a boat or car. To be deductible, the tax must be charged to you on a yearly basis, even if it is collected more than once a year or less than once a year.
• Foreign income taxes: Generally, you can take either a deduction or a tax credit for foreign income taxes, but not for taxes paid on income that is excluded from U.S. tax.
  

For detailed information about the sales tax deduction, consult IRS Publication 600, State and Local General Sales Taxes, and the interactive State and Local Sales Tax Calculator found on IRS.gov. More information about each of these topics is available at IRS.gov. IRS forms and publications can be downloaded from the Web site or obtained by calling 800-TAX-FORM (800-829-3676).

Sales Tax Deduction Calculator

If you file a Form 1040, and itemize deductions on Schedule A, you have the option of claiming either state and local income taxes or state and local sales taxes. (You can’t claim both.) If you saved your receipts throughout the year, you can add up the total amount of sales taxes you actually paid and claim that amount.

If you didn’t save all your receipts, you can still choose to claim state and local sales taxes. You could fill out the worksheet and use the optional general sales tax tables in Publication 600, State and Local General Sales Taxes (for 2006 tax returns) or 2005 Instructions for Schedules A & B (Form 1040) (for 2005 tax returns) – but why not take the easy route and use the Sales Tax Deduction Calculator!

Using the Sales Tax Deduction Calculator
To figure the amount of optional general sales tax you are eligible to claim, just answer a few online questions and the system does the rest. First select either 2006 or 2005. Then, using your ZIP Code and just a few entries from your draft Form 1040, the Sales Tax Deduction Calculator will automatically figure the amount of state and local sales tax you can claim. You will see the results from your entries immediately on your computer screen. Even if state and local sales tax rates changed during the year (e.g., due to changes in state and local rates or because you moved your personal residence), the Sales Tax Deduction Calculator can handle it.

Your entries are anonymous and the information is collected solely to allow you to determine your total allowable deduction. All entries are erased when you exit or start over. See the “IRS Privacy Policy” below for more information.

Ready to start? Continue to the Sales Tax Deduction Calculator.

Sales Tax Deduction Calculator - Frequently Asked Questions

Does the Sales Tax Deduction Calculator use a methodology that differs from the worksheet in 2006 Publication 600 and the 2005 Schedule A instructions?

No. However, it has built into it information on local sales tax rates, which are not contained in the paper instructions. It also does the math for you.

Why is this methodology called “optional”?

Because this is in lieu of your having to add up all of your general sales tax payments from your receipts, which you are always entitled to do.

Will the IRS retain any information about me when I use the calculator?

No. Although we do not use or retain any personal information about users of our web site, we do compile general usage statistics, such as the number of visits, the number of page views, etc.

Why aren’t the “specified items” already accounted for in the tables, etc.?

These “big ticket” items are generally not purchased every year. If an average annual amount were included in the tables for these purchases, then taxpayers would be able to get double benefit for them: using their actual receipts in years when they purchased such items, but using the tables in all other years. As a result, the law provides for such items to be accounted for outside of the tables entirely.

Why are there different methodologies for determining one’s local optional sales tax deduction, depending on one’s state or locality?

There are two key features of a general sales tax: what is taxed (the tax base), and how much it is taxed (the tax rate). Among the states that have local sales taxes, these two features create three basic categories:

1. Those in which the local tax base is the same as the state tax base and there is just one local sales tax rate throughout the state—in this case (e.g., Virginia), the local sales tax amount can be included with the state table using a combined rate on the same items.
2. Those in which the local tax base is the same as the state tax base, but the local sales tax rates vary throughout the state—in this case the local sales tax amount can be derived from the state amount using the ratio of the local rate to the state rate.
3. Those in which both the local tax bases and the local sales tax rates vary throughout the state—in this case the local sales tax amount must be derived independently from the state amount.

Is it necessary to tell the Sales Tax Deduction Calculator that I made a local move (within the same state and ZIP Code)?

Not if you’re sure that you stayed within the same local taxing jurisdiction. Many ZIP Codes contain more than one local taxing jurisdiction, however. If you changed your City or County of residence (even within the same ZIP Code), then you should enter your new residence separately in the Calculator.

Why are the residents of Salem County, New Jersey entitled to deduct only half of that state’s table amount?

By virtue of New Jersey law, the state sales tax rate in Salem County is half of the statewide rate.