Q:

What is a sales tax deduction?

A:

Quick Answer

Sales tax deductions are based on the amount of sales taxes paid during a given year, and are allowed if a taxpayer is filing Form 1040 and itemizing expenses under Schedule A, reports the Internal Revenue Service. The taxpayer may deduct either sales taxes or state and local income taxes.

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Full Answer

There is a set amount of optional sales tax that the taxpayer is allowed to claim, according to the Internal Revenue Service. A taxpayer can calculate the amount in a sales tax calculator provided on the Internal Revenue Service's website by plugging in the zip code, the tax year and some other items of information from the draft Form 1040. With this information, the calculator computes the maximum allowable state and local sales tax deduction the taxpayer may claim.

If local state and sales taxes changed during the tax year in question, the calculator takes these changes into effect, explains the IRS. In districts where there are different tax codes within one zip code, the sales tax calculator uses the average tax of both districts. The information entered into the function is collected only to compute the allowable sales tax deduction, and it is deleted as soon as the user exits the function, pursuant to the IRS Privacy Policy.

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