Deduction for Sales Taxes

Barry Dolowich for the Monterey Herald writes: Question: My wife and I purchased a new car and we also paid for our daughter's rather expensive wedding in 2013. Can we deduct the sales tax we paid on our tax return as an itemized deduction?

Answer: Sales tax was a deduction until the 1986 Tax Reform Act "simplified" the tax system. The 2004 Jumpstart Our Business Strength (JOBS) Act, enacted Oct. 22, 2004, provided that at the election of the taxpayer, State and local general sales tax may be taken as an itemized deduction in lieu of the itemized deduction provided under present law for State and local income taxes.

Taxpayers have two methods with respect to calculating the sales tax deduction amount. They are able to deduct the total amount of general state and local sales taxes paid by accumulating receipts showing general sales taxes paid. Alternatively, taxpayers may use tables created by the Internal Revenue Service. These tables are based on average consumption by taxpayers on a state-by-state basis, taking into account filing status, number of dependents, adjusted gross income and rates of state and local general sales taxation.

Taxpayers who use the Internal Revenue Service tables may, in addition to the table amounts, deduct eligible general sales taxes paid for the purchase of motor vehicles, boats, aircraft, homes, and materials to build a home.

However, if your state and local income tax deduction calculates higher than your sales tax deduction, you will be better off taking the higher state and local tax deduction amount.

There are other expensive items, taxes on which cannot be added to the sales tax table amount. These include expensive home furnishings, appliances and high-end audio or video components. A taxpayer who purchases such items should keep receipts for all sales taxes. Also, an individual who is planning to pay for a large party on which sales taxes are paid, such as a catered wedding reception, should save receipts to preserve the possibility of achieving a larger actual deduction than would be achieved using the tables.

The sales tax provision is effective for taxable years beginning after Dec. 31, 2003 and prior to January 1, 2014 (as recently extended by the "fiscal cliff" legislation), and the sales tax tables can be found in Internal Revenue Service Publication 600 or on the IRS web site www.irs.gov.

Barry Dolowich. He can be reached at bdolowich@gmail.com.