Local, state, and national governments collect sales taxes to generate revenue for essential public services like education, healthcare, public safety, and infrastructure. Sales taxes ensure a broad-based and equitable approach to taxation by distributing the burden of supporting public services among consumers who benefit from them.
Governments often adjust sales taxes to reflect current economic conditions and to stimulate or stabilize the economy. Fortunately, sales taxes are sometimes deductible, helping to reduce individual and business tax burdens and incentivizing economic growth.
What Are Sales Tax Deductions in Texas?
The sales and use tax in Texas is 6.25 percent and applies to:
- All retail sales
- Rentals and leases and rentals of most goods
- Various taxable services like debt collection, cleaning services, and insurance services
Some local cities, counties, transit authorities, and special purpose districts also levy an additional sales and use tax of up to two percent.
Other examples of taxable services in Texas are:
- Cable television services
- Data processing services
- Internet access services
- Personal property maintenance, repair, and remodeling
- Real property services
- Telephone answering services
- Taxable labor
In Texas, sales tax deductions refer to sales tax allowances you can claim on your federal income tax return. This deduction is especially advantageous for state residents who make significant purchases subject to sales tax, such as cars, boats, or home improvement materials. If you’re unsure about whether you’re entitled to sales tax deductions, consulting with a tax professional can help.
What is the Federal Sales Tax Deduction?
Sales taxes consumers pay over a tax year qualify for a sales tax deduction, but that doesn’t always mean you can take a deduction. For instance, you must itemize deductions on Schedule A of your federal Form 1040. When calculating your deduction, you can use the actual expense or consult the IRS sales tax tables.
- The actual sales tax method allows you to deduct the total amount of all sales taxes paid, assuming it’s less than the $10,000 limit.
- The IRS sales tax calculator and tables are estimates but do take many factors into consideration, including a state’s specific sales tax rate.
Deducting sales tax isn’t always the best option, particularly if the standard deduction is larger than the total of itemized deductions. The standard individual deduction for tax year 2023 will be $13,850 and $27,700 for married filers.
How to Write Off Sales Taxes
The federal sales tax deduction allows taxpayers to reduce their tax liability by deducting state and local sales or income taxes, but not both simultaneously. Texas does not impose personal income taxes and doesn’t have an income tax code.
Texas individuals who itemize deductions on their federal tax return and are full-time residents of the state can, in many cases, deduct state and local sales and use tax paid on certain purchases. Businesses can deduct sales tax on items purchased as a deductible business expense. The sales tax doesn’t need to be separated out, as the taxes are considered part of an item’s cost. You simply include the total amount paid, including the tax.
Individuals who operate a home-based business can’t deduct tax expenses for the personal part of their home but might be able to deduct other tax expenses. To do so, be sure to keep accurate records of business-related expenses and consult with a tax professional to learn which sales tax deductions, if any, you might be eligible for.
To learn more about sales tax in general or tax planning using the sales tax deduction, contact Gurian CPA Firm online or call 469-374-3151.
