Tax Topic

Sales tax deduction

The sales tax deduction continues to be available for 2022 for taxpayers itemizing deductions. However, for 2022, your deduction for state and local income taxes, sales taxes, and property taxes is limited to a combined total of $10,000 ($5,000 if Married Filing Separate). You can continue to deduct either your state income tax or the sales taxes you paid on personal purchases, but either is subject to the overall $10,000 cap. For most Washington residents, this means you will deduct sales tax, since you don't have a Washington State personal income tax.

You may deduct either the actual amount of sales taxes paid in 2022 for non-business purchases based on your receipts or use the IRS' table (adjusting for the local sales tax) plus the sales tax on home renovation expenses and vehicle purchases, e.g., autos, RVs, boats, airplanes, motorcycles, dirt bikes, snow mobiles (this includes the sales tax portion of any vehicle lease payments you might have made as well). If you choose to use actual instead of the table, I need you to provide the total amount of sales tax paid -- you don't need to bring me the receipts, but if you ever get audited, you will be required to substantiate the amount to the IRS with receipts showing the actual sales tax paid (keep in mind, your VISA slip doesn't show the sales tax, just the total). Otherwise, I will use the IRS' table based on your income and exemptions plus any information you give me about sales taxes paid on vehicles.

Keep in mind that sales tax is not charged on groceries or gasoline (lots of taxes on gasoline, but they are not "sales taxes.") There are many items at the grocery store, however, that are taxable, e.g., beer & wine, dog food, laundry detergent, sodas, paper towels, etc. You really need to look to your receipts as opposed to just the total paid.

Here is a link to the State of Washington's commentary about sales taxes deductible for Federal tax purposes: http://dor.wa.gov/content/findtaxesandrates/incometax/federaldeduction.aspx

Here is a link to the IRS' Sales Tax Deduction Calculator: http://www.irs.gov/Individuals/Sales-Tax-Deduction-Calculator

Here is the 2022 Washington general sales tax table that shows your general sales tax deduction based on your "adjusted gross income" and number of exemptions: IRS' Washington General Sales Tax Table WASalesTaxTable2022.pdf or WASalesTaxTable2022.xlsx.

This IRS table shows the sales tax deduction associated with the state general sales tax rate of 6.5%. To figure your total table-based sales tax deduction, you need to factor in the local sales tax rate. The local rate varies depending on where you live. For example, here are 2022 sales tax rates for various municipalities in and around Seattle: Seattle 10.25%, Tacoma 10.3%, Everett 9.89%, Issaquah/Bellevue/Renton 10.1%.

We will compute your sales tax deduction for you when we prepare your tax return if you don't provide the amount of actual sales tax paid. The above is just to let you know how it all works so that you can evaluate whether it's worth your time to figure out the actual sales tax you paid (by adding up the sales tax amounts on your receipts) relative to the table-based amount.

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