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If you live in one of the nine states without an income tax, be happy.
You can continue to claim a deduction for the sales taxes you pay in 2008 and 2009.
Taxpayers in states with an income tax can deduct state and local taxes paid if more than their sales-tax deductions.
There are only seven states with no income taxes whatsoever: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. In addition, New Hampshire and Tennessee collect income taxes only on dividends and interest income.
Say you and your spouse each earn $45,000 and have investment income of $10,000. If you live in Washington state and have three kids, that should produce a standard sales-tax deduction of roughly $1,300, assuming you base your deduction on the state's 6.5% sales tax rate. You can add local sales tax as well.
That could mean as much as $467 more in your pocket, not counting any sales taxes paid on a car, boat or airplane, which would be added to the standard amount.
You can get even more if you keep records of your actual sales taxes paid.
The law says that you can take a deduction for state and local sales taxes or state and local income taxes but not both.
Residents of Alaska, Delaware, Montana, New Hampshire and Oregon do not have any state sales taxes.
To take this deduction, you must itemize deductions on Schedule A (.pdf file) of Form 1040.
The IRS has a sales-tax deduction calculator. You can access it here.
For more information, consult IRS Publication 600: State and local general sales taxes (.pdf file).
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