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Sales Tax Deduction: Are U.S. Shoppers About to Lose a Big Tax Break?

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Sales tax write-offWith Black Friday just a few days away, shoppers across the nation are getting their wallets and pocketbooks ready to rumble. What many don't realize, though, is that a lucrative tax break that was part of the shopping equation for them in previous years may disappear come January.

Until this year, the IRS allowed you to take a federal deduction for state and local sales taxes. But unless Congress extends that provision, shoppers could lose a pretty substantial deduction on their tax returns come April -- one of the many tax breaks in line to expire as part of the impending fiscal cliff.

It's Only Fair

The sales tax deduction was enacted due to complaints from the millions of taxpayers who live in the seven states that don't have a state income tax. Under old tax law, taxpayers were entitled to a federal deduction for the state income taxes they paid, but couldn't take an equivalent deduction on their federal returns for sales taxes. That put an unfair burden on people in states like Texas and Florida, which don't have state income taxes but do have sales taxes.

After the change, taxpayers could choose to take a sales tax deduction on their federal returns instead of deducting state income tax payments. If your state has both sales and income taxes, you couldn't get a double deduction, but you could pick whichever one is greater.

Taxpayers had two choices for calculating their deduction: Either track all their purchases throughout the year, collecting their receipts and claiming the actual amount of tax they paid. Or figure out an appropriate deduction by using an IRS calculator that's based on their income, the number of personal exemptions they claimed, and their state of residence.

For instance, a family of four living in Florida earning $45,000 could claim $686 in deductible sales taxes, corresponding to spending of about $11,400. A four-member family earning $110,000 could claim a much larger amount, $1,104, reflecting the assumption that the larger family would spend closer to $18,400 on items with sales tax throughout the course of a given year.

Will the Deduction Return?

Many experts believe that the federal deduction for state sales tax will get reinstated in a fiscal cliff resolution. But it's just one in a long list of provisions that went away or are slated to go away, so it's far from a sure thing.

The simplest way to figure what your deduction would have been last year is to use the IRS calculator here. But unless the federal government gets its act together, shoppers may find themselves out of luck this year.


Motley Fool contributor Dan Caplinger deducts his state income tax happily. You can follow him on Twitter @DanCaplinger.

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Juanita Posey

I voted for Obama, this time, I think hes really trying hard to be a great President, but why so many persons didn't vote out the Republican Congress that are holding up Progress, is a mystery to me...Surely, in two years when some will come up for re-election, they will be eliminated and Obama can then get on with the Country's busines at hand. J.J. Posey

November 21 2012 at 4:10 PM Report abuse rate up rate down Reply
charpist5

Let me get this straight. They don't have to pay state tax at all, but complained about not being able to deduct sales tax? They should leave well enough alone.

November 20 2012 at 6:01 PM Report abuse rate up rate down Reply
tsmomfla

Do NOT use credit cards ...there will be no interest to worry about...if you cannot pay them in full every month!
I do not have any, paid them off, because I was wanted to live my life debt free. It is so freeing and wonderful to have no debt. Try it!

November 20 2012 at 4:57 PM Report abuse rate up rate down Reply
1 reply to tsmomfla's comment
charpist5

What does that have to do with deducting sales tax on your tax return?

November 20 2012 at 6:02 PM Report abuse rate up rate down Reply
rickpetersonms

Every tax increase makes the government larger and more powerful and reduces our wealth and individual freedoms.

Please consider this if you are being lulled into voting for "Sin Taxes" or increasing taxes on any group
whether you're a part of that group or not.

November 20 2012 at 4:55 PM Report abuse rate up rate down Reply
Master Sixkiller

http://www.youtube.com/watch?v=4Z9WVZddH9w

November 20 2012 at 4:31 PM Report abuse rate up rate down Reply
rann948

Add it up people. Without (and even with to some extent) a deduction, you are paying taxes on taxes. The true scope of unrepresented taxation is mind boggling. Consider this: you pay taxes on the amount of money you paid in SStaxes. Then when you retire, you pay taxes on your SS payments. LOL. Are you T-axed E-nough A-lready? Guess not.

November 20 2012 at 3:23 PM Report abuse +1 rate up rate down Reply
Ron

Oh just ONE of hundreds of Nobama taxes to come!!!

November 20 2012 at 2:26 PM Report abuse +1 rate up rate down Reply
ectullis

Can only afford to (almost) buy only necessities anyway.

November 20 2012 at 1:39 PM Report abuse rate up rate down Reply
Nekima

Since I'm more or less on a fixed income like most people (I dont get a 2-3% raise every year for "cost of living" like state and government employees do) the money will have to come from someplace. It will come from ME not spending more and putting it back int o the economy or carrying a CC balance to help the banks get richer.

November 20 2012 at 1:35 PM Report abuse +2 rate up rate down Reply
2 replies to Nekima's comment
JE WA ZA WI

Have been on a state pension for 20 years,in which I paid into for 33 years .Where did you hear I've been getting 2-3 % increase, each and every year ?If you find out ,let me know,since they owe me some big bucks,instead of ziltch .I'll follow up on your answer . I'm from Iowa,and on a government pension .That should help ,finding the answer .

November 20 2012 at 2:31 PM Report abuse rate up rate down Reply
1 reply to JE WA ZA WI's comment
vlady1000

Correction, "that the tax payers paid for you into for 33 years. I am a licensed Professional Engineer in the private sector. No pension, no 401K matching after working for 34 years for the same company. Had to do it all on my own.

November 20 2012 at 6:54 PM Report abuse rate up rate down
tsmomfla

me either!

November 20 2012 at 4:59 PM Report abuse rate up rate down Reply
rdd2897

I hope Obama lets it go over the cliff It will hurt the 1% more than people who had nothing in the first place I no how to go back and live in a cave I wander how many 1% do

November 20 2012 at 1:10 PM Report abuse rate up rate down Reply
2 replies to rdd2897's comment
rann948

The rich get poorer, and the poor get poorer. That's what you want? LOL nice.

November 20 2012 at 3:24 PM Report abuse +1 rate up rate down Reply
charpist5

You don't even sound literate. Oh, in case you don't know what that means....your post makes no sense. On so many levels....

November 20 2012 at 6:03 PM Report abuse rate up rate down Reply