State Sales Tax vs. State Income Tax

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State Sales Tax vs. State Income Tax

Post by kingmathers » Sat Jan 21, 2017 10:16 pm

So, I'm preparing my taxes, and I have thought about this in the past, but the State Income Tax always seemed to be higher than what I would have paid in State/Local Sales Tax. This year, I have spent more than normal years and wanted to compare the difference between my sales tax and state income tax.

I live in NC and the Sales Tax is 4.75% and the Local Sales Tax is 2% so a total of 6.75%. The state income tax is 5.75%. I used the IRS calculator to estimate the sales tax based on my income and large purchases and it seems pretty low. Of course, I did not save every single receipt for every purchase so I can not verify my actual sales tax paid. According to Turbo Tax, if you have not made a LARGE purchase such as a vehicle, home, boat, etc. it is not worth deducting the sales tax.

We moved into our home a couple years ago but during the first couple years I used my extra money to pay off debts. This past year I have done more spending on the home for higher priced items not normally bought each year (tools, new furniture, blinds, paint, etc.) that tend to add up and would not be included in the tables the IRS uses. I also purchased an engagement ring for my now fiancé that cost a pretty penny. My question is, has anyone found it worth deducting sales tax over income tax even if they have not made a large purchase such as house or new vehicle? Is it worth saving every receipt every year to tally up total sales tax paid in the year?

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Re: State Sales Tax vs. State Income Tax

Post by Jack FFR1846 » Sat Jan 21, 2017 10:57 pm

I think I've only claimed sales tax deduction one year, but we bought 2 cars that year. It comes down to what your income is and what the state rates are. I believe the IRS has "assumed" values for sales tax paid based on income.
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Re: State Sales Tax vs. State Income Tax

Post by jane1 » Sun Jan 22, 2017 3:11 am

State Sales Tax deduction often only makes sense for states where you would pay no/low income tax for your income bracket. Or when you have a major purchase (car, boat). Home purchase sales tax deduction has more restrictions.
I have found that the IRS Sales Tax calculation is often generous than actual tracking (unless you are dipping into savings for your purchases). A person's gross income goes towards paying for SS/Fed/State taxes, housing, food, healthcare, etc which may not be taxable in your state. So one only has a smaller amount remaining to spend on purchases subject to sales tax.

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Re: State Sales Tax vs. State Income Tax

Post by Katietsu » Wed Jan 25, 2017 1:18 am

There generally would need to be a special circumstance where spending is coming from funds not subject to income tax. For instance, some states do not subject state pensions to income tax resulting in a very low taxes relative to spendable income. Another circumstance where this can happen is when a person is using significant distributions from a Roth IRA.

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