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Sales Tax Deduction: FAQ
It is important to me that Washingtonians are treated fairly at tax time. Every year I work hard to ensure Washingtonians can deduct their state and local sales taxes, and I will continue fighting for this deduction until we succeed in making it permanent.
Taxpayers in states with an income tax are entitled to a federal deduction for the state income taxes they pay. This deduction prevents the double taxation of funds that have already been collected by the state to finance state services. Washington state has no income tax and finances its operations through a substantial sales tax. Unless the sales tax is made deductable, taxpayers in Washington and other states without an income tax bear a disproportionate share of the federal tax burden. From 1986 until 2004, this was the case for Washington.
Frequently Asked Questions About the New State Sales Tax Deduction
Q: Who is eligible for the tax cut?
A: Anyone who itemizes. Anyone can itemize, and therefore become eligible for the deduction. If taxpayers are intimidated about itemizing, they can call the IRS hotline for help: 1-800-829-1040 (that's 1-800-TAX-1040). However many people are better off taking the standard deduction.
Q: How will the tax cut work?
A: If you itemize, your state and local sales taxes will be deductible from your federal income tax return. You have two options to determine how much you can deduct: you can either use an IRS estimate of how much state and local sales taxes you paid, or you can use actual receipts.
Q: Do I need to save all of my sales tax receipts?
A: No. If you don't have your receipts, the IRS will estimate how much in sales taxes you paid. However, if you make large purchases you may be better off if you do save and itemize your receipts (see below). The easiest way to figure the amount of deduction you could claim is to use the IRS Sales Tax Deduction Calculator, found here.
Q: Why would I use a deduction table instead of actual sales receipts?
A: Unless you have made large purchases with high sales tax payments such as an automobile, home remodeling, jewelry, or a boat, it may be easier to use the IRS estimate instead of keeping all of your shopping receipts.
Q: How will the deduction tables work?
A: The law requires that the easy-to-use deduction tables be "based on the 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." This means you can deduct estimates based on the IRS tables even if you don't save receipts all year.
Q: When will the tables be available?
A: To take advantage of the state sales tax deduction, Washington tax filers should obtain IRS Schedule A (Form 1040), available here.
Q: What are some examples of large purchases whose sales tax are deductible?
A: Cars, boats, jewelry, and home remodeling expense are all costly items with state and local sales taxes that are now deductible under the law.
Q: What if I only have receipts for a few big ticket items?
A: You can add the sales tax paid on these items to the standard sales tax deduction found in the IRS-supplied tables on pages A12 through A14.
Q: Can I deduct items like luxury tax or excise taxes on the sale of homes?
A: Generally, only taxes paid at the general state and local sales tax rate are deductible.