You are allowed a deduction for any state and local income taxes that you paid, but you must take the deduction in the year that you paid them. However, for tax years before 2010 you could choose to deduct state and local sales taxes paid if the amount of the deduction was larger than the amount of income taxes paid. This provision was particularly beneficial for taxpayers living in states without income taxes.
The H&R Block software will automatically carry the state and local income tax amounts from your W-2 to Schedule A. In addition, the program gives you the option of entering your sales tax information, and then compares it to your state and local income taxes to determine which one will give you the largest deduction. If you make estimated state income tax payments and enter that information in the H&R Block software, it will also make sure that this information is properly reported.
If you make estimated state income tax payments and you make the last payment in December instead of January, you’ll increase your deduction for the current year, which is usually most desirable. If you didn’t do this in the prior year, then be sure to deduct it in the current year (the year paid).
If you owed money to a state or locality last year, then you probably paid the bill in the current year. If you did, make sure to include the amount in your current-year deduction.
For years before 2010, taxpayers were allowed to take a deduction for state and local sales taxes paid during the year when the amount sales taxes paid exceeded the amount of income taxes paid. To claim the state and local sales tax deduction, it isn’t necessary to save receipts unless you made a qualifying large purchase, such as an automobile. The IRS provides tables of standard amounts that you can deduct. The standard amounts are based upon your income, the state you live in, and your family size. The tables are built into the H&R Block software for your convenience. If you did make a large purchase, you can add the amount of sales tax that you paid to the standard amount found in the table.
Most people who live in a state with a state income tax probably pay more income tax than sales tax. In those states; however, people who live on federal or state pensions and Social Security income, which isn’t usually taxable state income, may benefit from this deduction.