Deducting State and Local Taxes
If you itemize deductions, you can deduct state and local taxes you paid during the year. These taxes can include state and local income taxes or state and local sales taxes, but not both.
To claim your state or local tax deduction on your 1040.com return, add the Taxes You Paid screen. On line 5, enter the state and local income taxes you paid during the tax year that are not reported on a W-2.
Alternatively, you can claim a deduction for the state and local sales taxes you paid. That might be a better choice if you had more purchases than income in a certain year, for example, or you don't have state or local income taxes. You can enter your sales tax on the same screen, next line. We'll automatically use the line that's most beneficial to you.
These entries flow automatically to Schedule A – Itemized Deductions, as needed.
As with all deductions, it’s important that you keep the written records that you paid these taxes should the IRS have any questions. Retain the tax statements and your cancelled checks showing you paid them for at least three years after the return is filed.