Intuit Academy Tax Level 1 Practice Test

Bria and Neil can deduct state and local sales tax on Schedule A because this is allowed as an itemized deduction. The IRS allows taxpayers to choose between deducting state and local income taxes or state and local sales taxes, with the aim of providing flexibility based on which deduction will be more beneficial for their tax situation. Many people choose to deduct sales tax when they live in states that do not impose an income tax or when their sales tax paid exceeds the amount of income tax they would pay.

This deduction can be calculated using actual sales tax receipts or by utilizing tables provided by the IRS, which estimate the sales tax based on the taxpayer's income and the state where they reside. This feature is particularly useful for those who make significant purchases or live in areas with a higher sales tax rate.

In contrast, federal income tax is not deductible on Schedule A, car loan interest is typically considered personal interest, which is not deductible, and while medical expenses can be itemized, they are only deductible to the extent that they exceed a certain percentage of the taxpayer’s adjusted gross income. Therefore, while medical expenses can sometimes lead to a deduction, they are subject to more restrictions than state and local sales taxes.