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10 Creative (But Legal) Tax Deductions

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Sales Taxes

customer, clothing store
Certain sales taxes in some states are tax deductible. filadendron/Getty Images

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The Internal Revenue Service (IRS) allows you to deduct state and local income taxes from your adjusted gross income during the same tax year. So, if you pay $1,000 in state and local taxes in April 2017 for income earned in 2016, you can deduct $1,000 from your 2017 federal income taxes. But what if you live in a state like Florida, Texas or Washington that don't collect state or local income taxes? The IRS gives these taxpayers -- all taxpayers, really -- the option of deducting state sales taxes instead. The IRS offers a handy sales tax calculator for estimating your deduction, but you can take even larger deductions if you buy a boat, plane or an airplane [source: McCormally].

You can also deduct certain vehicle-related taxes. For example, many states charge an annual registration fee for your car, truck, motorcycle, motor home or boat. This registration fee is really an extension of a sales tax, which is deductible as a personal property tax [sources: Barton, IRS].

However, starting in tax year 2018 (2019) there is an cap. Your total claim for state, sales and property taxes cannot exceed $10,000, or $5,000 for married couples filing separately. Unfortunately, it's not possible to pre-pay next-year's taxes to avoid the cap because they'll be considered paid in 2018. State, local and foreign property taxes that are deductible under Schedules C, E, and F are not capped [source: Erbs].

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