Should I deduct income tax or sales tax?

The 2006 tax year is the last time that you will be able to elect between deducting income tax or state tax, unless Congress extends the legislation allowing for this choice. If you live in a state with no income tax (which currently includes Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming), you are obviously better off deducting your sales tax. However, even if you are in a state with income tax, it still may be beneficial to deduct sales tax - you should calculate your taxes under both options and take the deduction which creates less tax liability.