A little over a year ago, a break was made “permanent” which allows taxpayers to take an itemized deduction for state and local sales taxes instead of state and local income taxes. This new tax break could be valuable to residents in states with no or low income taxes or those who purchased large items, such as a boat or car.

Your 2016 Tax Return
To determine whether you save more this year by deducting sales tax, compare the potential deduction for state and local income tax to the potential deduction for state and local sales tax.

Don’t worry if you don’t have the receipts to document all the sales tax you paid last year. You can still take full advantage of this tax break by using the IRS sales tax calculator to determine the deduction based on your income and sales tax rates in your local, plus the taxes your paid on select major purchases (for which you will need documentation).

2017 and Beyond this Year
If you’re considering making a big purchase this year, you shouldn’t count on the sales tax deduction being available on your 2017 return. When the PATH Act made this break “permanent” in late 2015, this only denoted there was no scheduled expiration date. At any time, Congress could pass legislation to remove the break or reduce its benefit.

Recent Republican proposals have included the elimination of many itemized deductions, and the President-elect has proposed putting a cap on itemized deductions. These proposals will make it into tax legislation in 2017 but when provisions will be signed into effect is still uncertain.

If you have questions about sales tax deductions or other breaks that may help you save taxes on your tax return, contact your advisor to help maximize your 2016 savings and plan ahead for the following year.

Questions about the sales tax deduction or other breaks that might help you save taxes on your 2016 tax return? Or about the impact of possible tax law changes on your 2017 tax planning? Contact us — we can help you maximize your 2016 savings and effectively plan for 2017.