The Tax Deduction You Should Know About If You Live In These 7 States (Including Florida)

If you live in Alaska, Florida, Nevada, Washington, Texas, Tennessee, South Dakota, New Hampshire, or Wyoming, you're in a state that doesn't charge income tax. However, these states still need funds to operate, so they collect money through sales tax, extra cost added to your purchases, like clothing, electronics, or groceries. Under the federal tax rules, tax paying Americans can choose to reduce their taxable income by deducting either the state income tax or the sales tax, but not both. For you, since there's no state income tax, you can only deduct the sales tax.

This doesn't mean you get all that sales tax money back, but it does mean you can reduce how much you owe the federal government at the end of the year. Think of it like this: it's a bit like having a coupon that can help you keep more money in your pocket. This all ties into what's called the state and local tax (SALT) deduction, which allows you, if you decide to itemize your deductions when you file your taxes, to subtract certain taxes you've paid to your state or local government from your federal taxes. This can include property taxes and, in your case, sales taxes, but not both.

To claim a sales tax deduction on your federal tax return, there are two ways to go about it: the Actual Expense method and the Standard Sales Tax Deduction method. The Actual Expense Method requires some effort, but it is worth it if you've made big purchases like a car, furniture, or expensive electronics. Throughout the year, keep all receipts that show the sales tax you've paid and at the end, total up the sales tax from your saved receipts. That's the amount you can deduct if you choose to itemize deductions on your tax return. When filing, enter the total on Schedule A of Form 1040 under the "Taxes You Paid" section.

The Standard Sales Tax Deduction method is for you if keeping every receipt is not your style. It uses the IRS Sales Tax Deduction Calculator to estimate how much you can deduct. Instead of adding up every sales tax payment, this tool calculates an estimated deduction based on your income, filing status, and general spending habits. If you made a big purchase, you can add the sales tax from that purchase to your estimated deduction. Once you have your final number, report it on Schedule A under "Taxes You Paid." Note, the IRS recommends you keep all receipts and records for at least three years, in case they need to verify your claim or in case of an audit.

The sales tax deduction might seem like a hero (it is), but it does not save the day every time. In 2017, the Tax Cuts and Jobs Act put a limit on how much you can reduce your taxable income for the taxes you pay to your state or local government. This includes the sales tax. So, whether you're single or married and filing your taxes together, you can only reduce your federal taxes by up to $10,000 for these taxes each year. Flying solo in your tax filing while married? Then you're looking at a $5,000 cap. And for those living in states where there's no income tax, this $10,000 limit has to cover both your property taxes and your sales taxes.

Hitting that $10,000 tax cap can happen quickly, especially if your property taxes are steep. If you're planning a major purchase, consider timing it within the same tax year to make the most of your deduction. Alternatively, you can opt for the standard deduction, which automatically lowers your taxable income by a set amount. For instance, if you're filing alone and made $50,000 this year, the standard deduction of $15,000 would drop your taxable income to $35,000. For married couples filing together in 2025, the standard deduction jumps to $30,000. So, if they earned a combined $100,000, this deduction would bring their taxable income down to $70,000.