What is the most overlooked tax deduction

People mess this up all the time when filing taxes. Like, you got your standard deductions, common credits — fine. But there's this one thing millions just walk right past. The state and local sales tax deduction. Everybody knows about the SALT thing for income taxes, but the part where you can deduct general sales taxes instead? Totally flies under the radar. Especially if you're living somewhere with no income tax. You get to choose: deduct state income taxes OR state sales taxes. And most folks just hit default on the standard deduction without even realizing itemizing could save them more.

What is the state and local sales tax deduction and who qualifies?

So here's the deal. This is an itemized deduction — you're basically saying "here's what I paid in general sales taxes this year." That includes big stuff like cars, boats, home appliances, building materials, even everyday purchases. You qualify if you itemize on Schedule A. People in Texas, Florida, Nevada, Washington, South Dakota — no income tax states — you're perfect candidates. But even if your state has income tax, you might benefit if you bought some pricey items. IRS gives you optional sales tax tables based on your income and where you live. Or you can use actual receipts if you're a receipt hoarder.

Why do so many taxpayers miss this deduction?

Honestly? A few things. First, the standard deduction got nearly doubled after the Tax Cuts and Jobs Act, so fewer people bother itemizing. Second, if you're in a no-income-tax state, you probably think there's zero state tax deduction available. Wrong — you can deduct sales tax. Third, the IRS tables aren't exactly advertised everywhere, and tracking receipts feels like a chore. And fourth, tax software usually defaults to the income tax deduction if you have one, even if sales tax would give you more money back.

How do you calculate the sales tax deduction?

Two ways to figure this out. Method one: use the IRS optional sales tax tables. They give you a base amount based on your state, income, and filing status. Then you add the actual sales tax you paid on big purchases — vehicles, boats, home additions. Method two: total up every single sales tax receipt from the whole year. More accurate but requires you to actually keep track. Most people go with the table method. It's simpler and still lets you add those big items. IRS updates these tables every year, and they're in the Schedule A instructions.

What are common mistakes when claiming this deduction?

Big one: not realizing you get to pick between income tax and sales tax deductions. You can't claim both, but you should calculate both to see which is bigger. Another mistake? Forgetting to include sales tax on large purchases — like a new car or major home renovation. That alone can bump up the deduction a lot. People also think they need to save every single receipt for small stuff. You don't — the table method covers everyday items. And some folks in income-tax states just ignore this entirely, assuming their income tax deduction is always better. Not necessarily true if you made some big taxable buys.

What other deductions are commonly overlooked?

Sales tax isn't the only one people miss. Medical expense deduction — a lot of folks don't realize you can deduct expenses over 7.5% of your adjusted gross income, including travel costs for medical care. Charitable contributions of non-cash stuff — like clothes and household goods — get forgotten if you don't properly value and document them. Student loan interest deduction? Parents who paid their kid's loans often miss it — you can claim it even if you're not the borrower but legally obligated to pay. And the HSA contribution deduction — people sometimes underuse it when they contribute outside payroll deductions.

Data table: Top 5 overlooked deductions by frequency

Checklist: How to claim the sales tax deduction

• Figure out if itemizing beats the standard deduction — compare totals.
• If itemizing, grab your W-2s, 1099s, and records of big purchases (vehicles, boats, home materials).
• Decide: IRS sales tax tables or actual receipts? Tables are usually easier.
• If using the table method, add sales tax from major purchases to the table amount.
• Compare your sales tax deduction to your state income tax deduction. Pick the bigger one.
• Enter the chosen amount on Schedule A — line 5a for sales tax, line 5b for income tax.
• Keep all receipts and docs in case the IRS comes knocking.

Expert insight

"The sales tax deduction is the most overlooked because it requires a mindset shift. Taxpayers in states like Texas or Florida often think they have no state tax deduction at all, but they can deduct thousands in sales tax from a single car purchase. Always run the numbers both ways." — Mark Steber, Chief Tax Information Officer at Jackson Hewitt

Frequently asked questions