Do you save receipts from retail purchases? Are you planning on buying a car, boat or other large items for your home? If so, it may be wise to save every receipt you can in order to take advantage of the sales tax deduction when you file your 2007 income taxes next year. Essentially we have a choice… deduct state and local income taxes, or deduct total sales taxes. Depending on how much you spend during the year, the sales tax deduction may provide a greater deduction. The American Jobs Creation Act of 2004 initially enacted this legislation, but it was extended through 2007 as part of the Tax Relief and Health Care Act of 2006. The Republicans wanted to ensure this deduction was available to all citizens at least through 2007. All bets are off after this year because Congress will need to pass new legislation to extend it. In late 2007, Congress passed legislation to continue the sales tax deduction for 2008.
But for now, it’s a great way to save on taxes if your total sales taxes paid add up to more than your state and local income taxes paid. For those who live in states without an income tax but do have sales taxes (Florida, Nevada, South Dakota, Texas, Washington, Wyoming and Tennessee), it’s a huge freebie for an extra income tax deduction. It may even benefit residents of Alaska or New Hampshire who don’t pay state income or sales taxes, but do have local taxes or other charges.Â
I used the sales tax deduction in both of the previous two years because it added up to more than my state income taxes. It’s really not that difficult either- we just keep a shoebox around and throw all our receipts from purchases into it. One year we purchased a new car, and another year we purchased large appliances for our home. The sales taxes paid on those items really bumped up the totals, and at tax time I simply added up the taxes from each receipt I had saved. I was surprised how fast it added up, and it probably saved us $400-$700 more on our total income taxes due than we would have achieved with a state income tax deduction.Â
If you have moved, or will move to a new home this year, you may have many more expenses than in previous years and could be surprised at the total sales taxes you have paid. If nothing else, why not save receipts during the year and add up the total in November or December? At that time if you are considering a large appliance or other purchase, maybe your decision will be easier based on the total sales taxes paid, and the larger tax deduction at filing time!
For more information, see the IRS website: Sales Tax Deduction Extended
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[…] if a large purchase such as a car or appliance has been made. We’ve talked before about keeping track of those receipts to make sure to get a larger sales tax […]