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Tax Breaks

Tax Tip 2016: Deduct State Sales Taxes

You might come out ahead on your federal tax return if you do.

Itemizers have the choice between deducting the state income taxes or state sales taxes they paid. Choose whichever saves you the most. So if your state doesn't have an income tax, the sales tax write-off is clearly the way to go on your federal return.

See Also: TAX MAP: States With No Income Tax

In some cases, even filers who pay state income taxes can come out ahead with the sales tax choice. The IRS has tables showing how much residents of various states can deduct, based on their income and state and local sales tax rates. If you purchased a big-ticket item like a vehicle, boat or plane, you may add the sales tax you paid to the amount shown in the IRS table. There’s also a sales-tax deduction calculator online.

One word of warning: Congress made this tax break “permanent” in 2015, but as lawmakers take up tax reform in 2017 there’s no guarantee it will survive. Still, you’re sure to have the choice for your 2016 return.

Check out all 23 commonly overlooked tax deductions.