Confused about deducting state income or sales tax?

Question

I'm confused about this. Can you deduct sales tax paid in the year 2006? Do you have to keep track of it? Or is it better to deduct state income tax paid?

Does it make a difference if you bought a big ticket item? I bought a car in Dec. 2006. The price was 24000 in CA. Is the sales tax on this item deductible? Does it matter that I financed the vehicle and am making payments?

Answer 1

If you choose to deduct the state sales tax, the IRS has a table that you must use. You can add any actual tax paid for big-ticket items like a car, boat, RV or major appliances to the table figures if you have proof that the tax was paid.

You should compare the two and see which one works out best for you -- sales tax or state income taxes -- and claim the larger of the two.

It doesn't matter if you financed the tax with the price of the car. It's considered paid when you bought the car, not when you make the payments.

Answer 2

If you are itemizing your deductions on the Schedule A rather than taking the Standard Deduction for your filing status, then yes you can claim the State/Local Sales Tax that you paid on the vehicle in addition to the amount allowed per Publication 600 for the State that you lived in. You have the choice of deducting the State and Local Sales Tax or the State and Local Income Tax.
This gets reported on Line 5 of the Schedule A.

If you are not itemizing your deductions then you would not be able to claim this

Publication 600 http://www.irs.gov/individuals/article/0,,id=96596,00.html

Answer 3

You have a choice, state and local income taxes or sales tax. For most people with jobs who live in states with an income tax, taking the state and local income taxes is a bigger deduction. For those without income taxable at the state level, or for people living in state without an income tax, taking the sales tax can be worthwhile.

There is a table showing the amount of sales tax you can deduct without any proof. The table is by state, by income level, and by family size. If you use the amount from the table, you can add to it the sales tax paid for purchase of a car, boat or plane.

If you choose to deduct sales tax, you don't have to use the table amount - if you have receipts that show a greater amount of sales tax paid, you can use that.

Answer 4

You can deduct either sales tax or state income tax, not both. I bought a 35k car and paid apx. 2400 in state sales tax, but I paid almost 5k in income tax (just enough to itemize). For most people, state income tax is higher unless you bought some gargantuan thing.

And no it doesnt matter if you financed the car. You still "paid" the tax, even in the form of debt.

Answer 5

you could declare a sales tax deduction on time table A for 2007 taxes presented you do no longer declare a deduction for state and native earnings taxes (presented you itemize deductions and don't in basic terms declare time-honored deduction). in case you reside in a low state and native tax area, that's invaluable toting up sales tax and seeing whether that's larger than the time-honored deduction.