Sale tax deduction

[VAer]

I have read below article, not sure how it works for sale tax.

For example, someone makes a lot of money and retires early. After retirement, his income is almost zero, and just live on his saving. However, if his sale tax is calculated correctly, he should go with itemized deduction, which is higher than standard deduction.

Now the question is: how is it possible for someone to keep record of sale tax? It could be sale tax from grocery, it could be sale tax from Amazon, etc. How is it possible to calculate so many little things? How can IRS verify reported sale tax?

https://www.nerdwallet.com/article/taxes/sales-tax-deduction

In general, the IRS lets you deduct one of the following:

• Your state and local general sales tax, or

• Your state and local income tax.

[xmasbaby0]

Keep ALL of your receipts and total the sales tax  yourself.   When you go through the screens to enter sales tax, that will be one of the options.

Sales tax is an itemized deduction.  Unless you have enough other itemized deductions to exceed your standard deduction the sales tax will have no effect on your tax due or refund.

Your itemized deductions have to be more than your standard deduction before you will see a change in your tax owed or tax refund.  The deductions you enter do not necessarily count “dollar for dollar;” many of them are subject to meeting  tough thresholds—medical expenses, for example, must meet a threshold that is pretty hard to reach. (Only the amount that is MORE than 7.5% of your AGI counts)   The software program uses all the IRS rules that apply to the expenses you enter, and it tells you if you have enough to use your itemized deductions or if using the standard deduction is more advantageous for you.  Under the new tax laws, some deductions have been capped—there is a $10,000 limit to the itemized deductions for state, local, property and sales taxes.

Your standard deduction lowers your taxable income. The standard deduction makes some of your income “tax free.”  It is not a refund.  You will see your standard or itemized deduction amount on line 12 of your 2023 Form 1040.

2023 STANDARD DEDUCTION AMOUNTS

SINGLE $13,850  (65 or older/legally blind + $1850)

MARRIED FILING SEPARATELY $13,850  (65 or older/legally blind + $1500)

MARRIED FILING JOINTLY $27,700  (65+/legally blind) )  + $1500 per spouse

HEAD OF HOUSEHOLD  $20,800 (65 or older/blind)  + $1850)

2024 STANDARD DEDUCTION AMOUNTS

SINGLE $14,600    (65 or older/legally blind + $1950)

MARRIED FILING SEPARATELY $14,600    (65 or older/legally blind + $1550)

MARRIED FILING JOINTLY $29,200    (65 or older/legally blind + $1550)

HEAD OF HOUSEHOLD $21,900    (65 or older/legally blind + $1950)

[VAer]

@xmasbaby0 

SALT could expire after 2025.

So currently sale tax is also part of SALT $10k limit?

How many of people had actually used sale tax on Itemized Deduction? If that is the case, it is quite annoying to add sale tax together manually.

[xmasbaby0]

You can itemize sales tax OR state and local tax (such as property tax, local tax, etc.).   --  not both.   And .....some states have no state income tax, so sales tax sometimes helps people in those states.   However, very few people now have enough itemized deductions to exceed their standard deduction.

You do not *have*  to add up all your sales tax receipts unless you are choosing to use the exact amount.  You can also choose to let the software calculate an estimated amount of sales tax that you paid based on your income and the local sales tax rate.  (Have you actually looked at that area of the software to see the screens?)

And...yes, SALT could expire/change after 2025.   We do not know if Congress will extend or change the tax laws.

[VAer]

@xmasbaby0 

No, I have not looked into software part of estimating sale tax. This is question purpose only.  Using sale tax as itemized deduction does not apply to me now or anytime soon, but it is possible that it will apply to me one day, if law remains the same.

For states without income tax, maybe people still don't choose sale tax deduction, correct? Sale tax help them on state tax return, but not help them on federal tax return. Is it possible for them to use income tax for federal tax return and use sale tax for state tax return?

I still use itemized deduction (even under SALT limit, there is significant amount of mortgage interest), but state and local income tax is way higher than sale tax. So far, I don't need to use sale tax.

I am talking about, in the future, if I retire early and I have very little income (live on saving), and if SALT limit is gone, and if property tax is high, then I could use sale tax as part of itemized deduction. I know there are a lot of IF, it is just a question based on assumption. 

But that could be possible for using sale tax as itemized deduction one day, just assuming that I am retired without salary and do poorly on stock market (no income from stock market) for some years, but still have a big house with high property tax. Then it is possible for me to use itemized deduction with sale tax.

[xmasbaby0]

@VAer You have a lot of "ifs"----Watch what -- if anything-- changes for the tax laws after 2025.   And..you cannot combine using sales tax AND property taxes---it is one or the other under the current tax laws.   Sales tax CAN be an itemized deduction on a federal tax return----that is why you enter it when you prepare your federal tax return.   It would be quite unusual for your state to give you a state deduction for that state's sales tax.   Information flows from your federal return to the state software, so if there is any sort of deduction or credit in your state for state sales tax you paid, the software will calculate that.     (again--highly unlikely...but we do not know what state you are in.   There was a recent state credit in the state of CO for sales tax)

You say you might be living on savings.   An income tax refund comes from paying more tax than you were required to pay for the amount of income you received during the year.   So without a lot more information, we cannot predict whether entering sales tax would have any effect at all on your tax due or possible tax refund.

[VAer]

@xmasbaby0 

"And..you cannot combine using sales tax AND property taxes---it is one or the other under the current tax laws."

 When I look at schedule A, it does not look true. I should be able to combine sale tax and property tax; sale tax cannot be combined with state/local income tax.

https://www.irs.gov/pub/irs-pdf/f1040sa.pdf 

[xmasbaby0]

https://ttlc.intuit.com/turbotax-support/en-us/help-article/tax-credits-deductions/deduction-choose-...

Again----unless the law changes after 2025, the SALT deduction is capped at $10,000.  We do not know what will happen beyond 2025.

[xmasbaby0]

To clarify for you-----the current $10K SALT cap pertains to the combination of property tax and/or sales tax OR to state and local income tax ---which cannot combine with sales tax.    You cannot combine the sales tax deduction with your state or local income tax deduction.   Sorry if I confused you.   

You are asking hypothetical questions---we cannot predict what Congress will do with the tax laws beyond 2025.

[Opus 17]

@xmasbaby0 

I think you made an error.

A taxpayer may deduct state and local income tax or state and local sales tax, but not both.

On top of that, the taxpayer may deduct any real property taxes that they pay for property they own in the US, no matter what state it is located in, and any personal property taxes.

The combined total of (sales tax OR income tax) PLUS property tax PLUS personal property tax, can't be more than $10,000 under the current law.

@VAer 

There are two ways to claim a tax deduction for state and local income taxes.  You can keep all your receipts.  Or, you can use the optional method, which is based on your taxable income.  (The IRS has a formula that estimates that if your income is at a certain level, your taxable purchases are assumed to be at a similar level.)  Or course, this method will under-estimate your sales tax paid if you have no taxable income because you are taking all your money from a mattress, or a non-taxable investment like tax-free bonds or a Roth IRA.

Also, not all purchases qualify.  You must pay the general sales tax rate charged on typical purchases.  That means that the extra taxes charged on gasoline, cigarettes, liquor, and so on, are not deductible. Likewise, if the general sales tax rate is 6%, but you stay at a hotel in a city with a special hotel tax, the extra tax is not deductible, just 6%.  

The detailed rules are in the form 1040 instructions for schedule A. 

Lastly, federal taxes paid are never a deduction on your federal tax return.  State taxes paid are an allowed deduction on your federal tax return, if you follow the rules, and assuming your total itemized deductions are more than the standard deduction for your situation.  Federal income tax may be a deduction on some state tax returns, but state taxes (income, sales or property) are never a tax deduction on a state income tax return. 

[VAer]

@Opus 17 

"but state taxes (income, sales or property) are never a tax deduction on a state income tax return. "

It does not seem to be correct for Virginia. Question 5-7: Virginia allows state taxes as deduction on state tax return.

https://www.tax.virginia.gov/sites/default/files/taxforms/individual-income-tax/2023/schedule-2023.p...

[Opus 17]

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@VAer wrote:

@Opus 17 

"but state taxes (income, sales or property) are never a tax deduction on a state income tax return. "

It does not seem to be correct for Virginia. Question 5-7: Virginia allows state taxes as deduction on state tax return.

https://www.tax.virginia.gov/sites/default/files/taxforms/individual-income-tax/2023/schedule-2023.p...

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You are partly correct.  Look at line 18, and do the math.  Virginia allows an itemized deduction for real property taxes and personal property taxes (the car tax to the county) but does not allow a deduction for income taxes.