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IS THE SALES TAX DEDUCTION A BETTER DEAL?

April 07, 2007

Congress restored the long-lost deduction for sales taxes a couple of years ago with a new twist: you can deduct either state and local income taxes or sales taxes, but not both. People in high-tax states like Iowa take for granted that the income tax deduction is a better deal. That's usually right - but not always. And if you live in a low tax state like South Dakota or Florida, the sales tax deduction might be a no-brainer.

Iowa's loophole-ridden tax law can cause you to have a low income tax in some seemingly odd circumstances. Special breaks for the elderly often cause seniors to have little or no Iowa tax. Young adults and those who take advantage of Iowa's many "economic development" tax credits can also find themselves with little or no tax liability.

Those of us old enough to have worked with the pre-1986 sales tax deduction remember the demented clients who would bring a grocery bag full of all of their receipts for the year so you could compute their sales tax deduction. There's a better way.

The IRS has issued tables you can use to compute a "gimme" sales tax deduction, based on your income. You can add to the table number actual taxes paid for large purchases like cars or boats. These tables are incorprated in the online sales tax calculator at the IRS web site.

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