Jan 17, 2008 4:21 PM
A federal tax law allows taxpayers who itemize tax deductions to deduct their state and local income taxes or sales taxes from their federal tax return. Before this, sales tax could not be deducted from federal income tax.
This is especially important for the states that do not have an income tax, but do have state/local sales taxes: Alaska, Florida, Nevada, North Dakota, Tennessee, Texas, Washington and Wyoming.
Under this law, individuals who file an itemized federal tax return have two ways to account for the deduction for 2007 sales tax. One is for individuals to keep all of their sales receipts and tally the sales tax paid each year. The second is to use forthcoming tables provided by the IRS to calculate the deduction. People who live in a state that has both an income tax and a sales tax can deduct whichever is greater.
Be sure to check whether you are better off using itemized deductions instead of the standard deduction.