Shoppers Fear Losing Sales Tax Deduction

Last updated on November 26, 2021

Next year, shoppers will need to pay more if sales tax deduction expires and is not renewed. Till December 31st, 2012, the IRS will allow federal deduction for state and local sales taxes, but starting 2013 shoppers will need to pay more taxes. This deduction is not the only one to expire. It is just one in the long line of deductions and tax breaks that are expiring this year.

Why the Deduction was Introduced

http://www.dailyfinance.com/2012/11/20/sales-tax-deduction-fiscal-cliff/ explains how the deduction on sales tax came into being.

“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.”

Calculating the Deduction

To calculate their deduction, taxpayers can either use the purchases of the entire year or use the IRS calculator to calculate their deduction based on their income. Daily Finance gives an example of how taxpayers can calculate their deduction:

“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.”

As sales tax deduction is not the only one that American taxpayers will be losing, the total number of deductions a taxpayer loses can make a big difference to the amount of taxes they pay. Speculations about which tax breaks will stay and which will be allowed to expire is ripe. Nobody is sure what the Obama administration will decide, but one thing is sure. The talk about fiscal cliff will lead us to the next year.