Q&A: Can I Deduct Sales Tax?

Yes. You can deduct the sales tax on items purchased for your family child care business.

If the item is used 100% for your business, you can deduct 100% of the sales tax.

If the item is used by your family and your business, you can deduct the Time-Space Percentage of the sales tax.

If your receipt has both business and personal items on it, you must determine how much of the sales tax is attributable to the business purchases.

For example, let's say there are six items on your receipt; one item is used 100% for your business ($23.95), two items are shared business and personal items ($49.95 + $14.50 = $64.44) and the other three items are 100% personal ($39.95). The total is $128.30. The total sales tax (6.5%) is $8.34. Your Time-Space Percentage is 40%.

Multiply your shared items ($64.44) by 40% = $25.78. Add this to your 100% items ($23.95) = $49.73. Divide $49.73 by the total cost of the items ($128.30) = 38.8% which represents the portion of the total cost that is business. Multiply the sales tax ($8.34) by 38.8% = $3.24 which represents the amount of the sales tax that is business.

So, this is the total amount of the receipt that is deductible: $23.95 + $25.78 + $3.24 = $52.97.

Forgetting to count sales tax can make a difference on your tax return. I once helped a child care provider who was audited. She did not realize she could count sales tax. When she went back and added up all the business sales tax she could deduct, the total was hundreds of dollars.

Tom Copeland - www.tomcopelandblog.comImage credit: https://www.thebluediamondgallery.com/handwriting/s/sales-tax.html