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3 Top Texas Tax Breaks You Don't Want to Miss

By Matthew Frankel, CFP® – Nov 19, 2016 at 4:31PM

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Texas doesn't have a state income tax, but there are still ways you could save money.

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The phrase "Texas tax breaks" may sound silly to residents of the state. After all, Texas doesn't have a state income tax, so how can Texas residents get tax breaks? However, keep in mind that Texas residents also pay sales tax, and there are three big tax breaks related to Texas' sales tax. Texas' sales tax rate is currently 6.25%, and local jurisdictions can impose an additional tax of up to 2%, so these tax breaks can result in significant savings.

Back-to-school tax breaks

Texas is one of 17 states that offer a tax-free weekend designed to save residents money on their back-to-school shopping. Specifically, Texas' tax holiday in 2017 will run from Aug. 4 to Aug. 6, and the items exempt from sales tax include clothing, backpacks, and school supplies, all of which are subject to cost limitations.

For clothing and footwear, the tax holiday applies to items that are sold for less than $100, with no limit to the number of items each customer can purchase. For example, if you were to buy 10 pairs of shoes, each of which cost $80, then you would get a tax exemption on the entire $800 purchase. Athletic clothing and footwear that is typically not suitable for everyday wear, such as golf cleats, is excluded.

The $100 per-item limit also applies to backpacks and school supplies. The purchase of more than 10 backpacks in one transaction requires an exemption certificate provided to the seller, as does any purchase of school supplies under a business account.

Save energy and money at the same time

In addition to the back-to-school tax holiday, Texas has a separate tax holiday on Energy Star products that will run from May 27 to May 29, 2017. There is no limit to the number of energy-efficient products you can purchase, and the specific items that qualify for the tax exemption include:

  • Air conditioners with a sales price of $6,000 or less
  • Refrigerators with a sales price of $2,000 or less
  • Ceiling fans
  • Incandescent/fluorescent light bulbs
  • Washing machines
  • Dishwashers
  • Dehumidifiers

Contractors can also buy and sell these products tax-free during the holiday, and consumers can even use the exemption on layaway sales.

Don't forget to write off your Texas sales taxes

If you itemize deductions on your Federal tax return, then you have the choice of deducting either your state income taxes or your state sales taxes, whichever is greater. For most U.S. taxpayers, state income taxes are the more lucrative deduction. However, for states without an income tax like Texas, the choice is obvious.

Unlike many other tax breaks, you don't need to save each and every receipt for all your purchases throughout the year to be able to deduct your Texas sales taxes. The IRS provides a calculator that you can use to determine your deduction based on your income level, number of exemptions, and specific location. If you paid sales tax on large items, like a boat for instance, you can add those to the estimate.

Of course, if you did save all your receipts and paid more sales tax than the calculator says, then you're free to use the higher amount.

Just as an example, I entered an income range of $90,000-$100,000 into the calculator with two exemptions and a San Antonio zip code and was given a deduction amount of $1,283. So it's fair to say that this can be a pretty substantial deduction, especially if you paid sales tax on a few large items throughout the year. Keep in mind that you need to itemize deductions on your Federal tax return in order to take advantage.

How much could you save?

The amount you could save from the two tax holidays depends on how much you spend on qualifying products. While I'm not saying you should buy things you don't need just to take advantage of these tax breaks, it is a good idea to plan your shopping accordingly. For example, if you've been thinking of buying a new refrigerator, waiting until the Energy Star tax holiday to do it could save you as much as $165. And we've seen how much the sales tax deduction could save you when you file your return.

The bottom line is that even though Texas doesn't have an income tax, there are still ways for Texas residents to keep more of their hard-earned money in their own pocket.

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