Currently, you are allowed an income tax deduction for the greater of your state and local income taxes and your state and local sales taxes. A little over a year ago, the PATH Act made “permanent” the break allowing taxpayers to deduct state and local sales taxes as an itemized deduction in lieu of state and local income taxes. For many taxpayers their income taxes will substantially exceed their sales taxes, and therefore, not provide any benefit. However, if you reside in a state with no or low income taxes or you purchase major items, such as a car or boat, this break can be valuable.
2016 Tax Return
You do not have to document all of the sales tax you actually paid during the year. You can use the IRS sales tax calculator to determine your deduction based on your income and the sales tax rates in your locale plus the tax you actually paid on certain major purchases (for which you will need substantiation). Compare your potential deduction for state and local income tax to your potential deduction for state and local sales tax and deduct the greater.
If you are in the Alternative Minimum Tax (“AMT”), it does not matter, since neither is deductible for AMT purposes.