Understanding Sales Tax

Most people pay sales tax, and most people, at the same time, don’t really know what sales tax is. To put it simply, sales tax is the tax that is collected by merchants. The merchants have to pay this money they collect to the IRS. Of course, this is not the case in every state, though it is in most.

Right now, 45 states collect state sales tax, and 38 states collect local sales tax. How much taxes different states collect and how much they charge in each category varies greatly from one state to the next.   

If you do live somewhere that requires you to pay one or both types of taxes on a regular basis, then you may find it smart to deduct sales tax payments when you file your federal income tax return. In order to do this, you’ll need to itemize your deductions, and then deduct your state income taxes or state sales taxes, not both. Since you can’t deduct both, it’s worth it to figure out which deduction will benefit you the most and then take that one.

For most people, the smartest option is to deduct state income taxes. However, that may not be the case if you’ve made big purchases in a place with higher sales tax or if you’ve paid more in sales taxes than income taxes. If you’re having trouble figuring out which situation applies to you and how best to file, remember that you can always seek help from a tax professional.

In fact, anytime you are trying to itemize deductions and/or deduct sales tax payments, it’s a good idea to speak with a professional. These tax situations can be tricky and difficult to handle on your own, which is why it’s always good to have input and help from someone who knows what they’re doing.