The pressure is on when you're trying to factor in "extra costs" when buying an item from a retailer or ordering food from a restaurant. The reality is that those seemingly small sales tax percentages that get tacked to the end of every purchase can add up to something pretty significant over time. That means you need to know how to add in sales tax quickly and accurately if you're trying to stay within a certain overall budget. Don't forget that sales tax can also be deductible on your tax return.
It all gives you a good reason to become familiar with how to tally up sales tax in a flash for your records. Take a look at the fast, easy way to add tax on a calculator.
The First Question: Does Your State Have Sales Tax?
You're actually looking at both state and local taxes when tallying up sales tax in some parts of the country. Around the country, 45 states and the District of Columbia implement statewide sales taxes on goods and services. In addition, a total of 38 states collect local sales taxes.
Read More: How to Calculate the Sales Tax on Multiple Items
You can use this handy table from the Tax Foundation to look at the specific sales tax rate for your state in 2020. While it's hard to give a blanket answer regarding any local taxes that might be due on a specific purchase based on where you make the transaction, you can look at a different table that shows both state sales tax and average local tax by state.
Read More: How to Calculate Tax at Restaurants
Calculating Your Sales Tax With a Simple Formula
Once you have the number in front of you regarding the actual percentage you'll need to tack on, you can begin your calculation. You can typically just plug everything you need into a simple calculator app to get your totals. Here's what that looks like:
- If you'll need to pay both state and local taxes, combine the two tax rates together to create a "single" sales tax. For instance, a state sales tax that equals 4 percent combined with a local sales tax that equals 1.5 percent means a total sales tax of 5.5 percent that needs to be added to the price of your purchase.
- Next, divide your whole sales tax percentage by 100 to transform it from a percentage to a decimal representation. If you're using 5.5 percent, you'll get a new representation of 0.055 after dividing by 100.
- The next step is to add a value of "1" to the decimal form of your sales tax. Using the 0.055 carried over from the previous step, you should now have a value of 1.055 on your calculator screen.
- The last step is to multiply 1.055 by the pre-tax listed price of the item you're buying. If that item is $34, your equation will look like $34 x 1.055 = $35.87. That $35.87 value represents the full price of your item with both state and local taxes figured into the price.
Read More: Deducting State and Local Tax on Your Federal Taxes
If you're buying multiple items, add sales tax for each item. It's also helpful to know which items are exempt from sales tax in your state. For instance, groceries and medicine are often tax-free purchases.
Final Thought: Should You Deduct Sales Tax on Your 2020 Tax Return?
It is possible to deduct what you've paid in state and local sales tax throughout 2020 on your 2020 taxes. However, you can only do this if you do not deduct state and local income tax paid in 2020. While most people won't be better off taking the sales tax deduction, there could be exceptions.
This approach could be preferred if you made some major purchases in 2020 that resulted in a lot of sales tax being paid. Another scenario where this might work is if you live in a state with high sales tax that doesn't have an income tax.
Read More: Which States Do Not Charge State Income Taxes?
