Estimated Sales Taxes

• For people who do not like keeping receipts, the IRS created a formula to estimate the amount you paid in sales taxes based on the sales tax rates in your area, your adjusted gross income and the number of dependents you claim on your income taxes. Thankfully, the IRS also created a website to do the calculations for you so that you do not have to manually calculate your deduction.
  
  

Actual Sales Taxes

• If you do keep our receipts, you can also choose to deduct the actual amount of state and local sales taxes you paid during the year. If you choose this method, you must have receipts for all of the sales taxes you claim on your income taxes. This method often results in a higher income tax deduction if you bought big-ticket purchases during the year. You should use whichever method gives you the larger deduction. However, the methods cannot be combined. For example, you cannot add on the sales taxes paid on a big-ticket item to your estimated sales taxes.
  
  

Claiming Your Deduction

• You must itemize your deductions with Schedule A for Form 1040 if you want to claim the sales tax deduction. As of 2011, report the deduction on Line 5 and check the box on Line 5b. The amount reported on Line 5, plus the other itemized deductions, goes on Line 29 of Schedule A. Anytime you itemize your deductions, you have to use Form 1040 for your tax return. The amount of your itemized deductions, including your deductible sales taxes, goes on Line 40 and decreases your taxable income.
  
  

Loss of Standard Deduction

• You cannot claim the standard deduction when you claim the sales tax deduction because you must itemize. In addition, you also lose the ability to write off your state and local income taxes paid during the year. If you live in one of the few states with no income tax, this does not hurt you on your tax return. However, if you paid more in state and local income tax than you did in deductible sales taxes, you should forgo your sales tax deduction in favor of the state and local income tax deduction.