Category Archives: Tax Advice

Charitable giving tax strategies for high earners changed in 2026. The One Big Beautiful Bill Act added a floor under the charitable deduction and a cap on what it is worth to top bracket donors. Writing a check in December and claiming the full amount no longer works the way it did. How you give, what you give, and which year you give now decide how much tax you save.

The new rules reduce the deduction but leave the strongest strategies in place. Donating appreciated stock still avoids capital gains tax. Donor advised funds still let you bunch several years of gifts into one. Qualified charitable distributions from an IRA sidestep both new limits. This guide explains the 2026 rules in plain terms and shows which strategy fits which donor.

What Changed for High Income Donors in 2026

Three rules now shape every large gift. Two took effect on January 1, 2026. The third was made permanent.

For 2026, the 37% bracket starts at taxable income above $640,600 for single filers and $768,700 for married couples filing jointly. The standard deduction is $16,100 for single filers and $32,200 for joint filers.

How the 0.5% AGI Floor Works

If you itemize, the first 0.5% of your adjusted gross income in gifts earns no deduction. Only the amount above that line counts. The higher your income, the more you give before the deduction starts.

The floor resets every year. A donor with $1,000,000 of AGI who gives $5,000 each year gets no deduction at all. In most cases the amount under the floor is lost for good. It carries forward only when your gifts also exceed the AGI percentage limits and create a carryover.

How the 35% Cap Works

The cap applies to donors in the 37% bracket. Each dollar of itemized deductions now saves at most 35 cents of tax instead of 37. The cap covers all itemized deductions, including mortgage interest and property taxes, not only charitable gifts.

The floor and the cap stack. First you lose the slice under the floor. Then the rest is worth less. Here is the math for a married couple with $1,000,000 of AGI who give $50,000 in cash.

The same gift costs this couple $2,750 more in 2026. The example assumes the full deduction offsets income taxed at 37%.

AGI Limits Still Apply

The older ceilings sit on top of the new floor. They cap how much you can deduct in one year. Anything above the ceiling carries forward for up to five years.

Florida donors have one advantage here. The state has no personal income tax, so there is no state deduction to plan around. The federal return is the whole picture. The other side of that coin is that Florida residents often have fewer itemized deductions, which makes the timing of gifts matter more.

Seven Charitable Giving Strategies for High Earners

None of these strategies asks you to give less. Each one changes the asset, the vehicle, or the year so that more of your gift earns a tax benefit.

1. Donate Appreciated Stock Instead of Cash

Giving long term appreciated stock is often the most efficient gift a high earner can make. You deduct the full fair market value, and you never pay capital gains tax on the growth. The charity sells the shares tax free.

Take stock worth $100,000 that you bought for $20,000. If you sell it first, the $80,000 gain can be taxed at 20% plus the 3.8% net investment income tax. That is $19,040 of tax. If you donate the shares directly, that tax disappears, and you still deduct $100,000.

Two rules apply. You must have held the asset for more than one year. And you should not donate shares that have lost value. Sell those, claim the loss, and give the cash.

2. Bunch Several Years of Gifts Into One

Bunching is the direct answer to the 0.5% floor. The floor applies once per tax year. If you give three years of donations in one year, you pay the floor once instead of three times.

A donor with $1,000,000 of AGI who gives $50,000 a year loses $5,000 to the floor each year, or $15,000 over three years. Giving $150,000 in one year loses $5,000 once. That is $10,000 more in deductions, worth about $3,500 at the 35% cap.

3. Use a Donor Advised Fund

A donor advised fund, or DAF, makes bunching practical. You contribute cash or stock to the fund and take the full deduction that year. Then you recommend grants to charities over the following months or years. The money can be invested while it waits.

National sponsors and local community foundations both offer DAFs. A DAF pairs well with appreciated stock, because one transfer of shares can fund several years of giving. Keep in mind that the gift is final once it goes in. You advise on grants, but you cannot take the money back.

4. Give From Your IRA With a Qualified Charitable Distribution

A qualified charitable distribution, or QCD, is the one strategy the 2026 rules do not touch. If you are age 70½ or older, you can send up to $111,000 in 2026 directly from a traditional IRA to charity. Each spouse has a separate limit.

A QCD is not a deduction. The amount simply never shows up in your income. Because it stays out of AGI, the 0.5% floor and the 35% cap do not apply. It also counts toward your required minimum distribution once those begin.

The transfer must go straight from the IRA custodian to the charity. Donor advised funds and private foundations cannot receive a QCD.

5. Match Large Gifts to High Income Years

A deduction is worth the most in the year your income is highest. A business sale, a large bonus, a Roth conversion, or a big capital gain can all push income up for one year. Funding a DAF in that same year puts the deduction where it offsets the most tax.

Run the numbers before you commit. A larger AGI also means a larger floor and a higher ceiling on what you can deduct.

6. Consider a Charitable Remainder Trust for a Major Asset

A charitable remainder trust suits donors who hold a highly appreciated asset and still want income from it. You transfer the asset to the trust. The trust sells it without an immediate capital gains tax and pays you an income stream for a set term or for life. What remains goes to charity.

You get a partial deduction up front, based on the value expected to reach charity. The capital gain is spread over the payments you receive. These trusts carry legal and administrative costs, so they fit larger gifts such as real estate or a concentrated stock position.

7. Plan Business Giving Separately

Business owners have a second set of rules. Starting in 2026, a C corporation can deduct charitable gifts only above 1% of its taxable income, and the ceiling remains 10%. Gifts under the 1% floor are lost.

Gifts made by an S corporation, partnership, or LLC pass through to the owners and land on their personal returns. There they face the same 0.5% floor and 35% cap. That is one more factor to weigh if you are deciding whether your Florida LLC should elect S corp status.

A sponsorship is different from a donation. When your business pays a nonprofit and receives real advertising in return, the payment may qualify as an ordinary business expense instead. Keep the agreement and proof of what you received.

A Bonus for the Off Years

Donors who bunch often take the standard deduction in the years between large gifts. Starting in 2026, those years are not wasted. Taxpayers who do not itemize can deduct up to $1,000 of cash gifts, or $2,000 on a joint return. The gifts must go directly to public charities. Contributions to a DAF or a private foundation do not count for this deduction.

Which Strategy Fits Which Donor

Records the IRS Expects

A strategy only works if the deduction survives review. The IRS denies charitable deductions over missing paperwork every year, even when the gift was real.

• Any cash gift. Keep a bank record or a written receipt from the charity.
• Any single gift of $250 or more. Get a written acknowledgment from the charity before you file. It must state whether you received anything in return.
• Noncash gifts over $500. File Form 8283 with your return.
• Noncash gifts over $5,000. Obtain a qualified appraisal. Publicly traded stock is the main exception.
• Every charity. Confirm its status with the IRS Tax Exempt Organization Search tool before you give.

Year End Timing

A gift counts for 2026 only if it is complete by December 31, 2026. Each type of gift has its own clock.

• A check counts when you mail it.
• A credit card gift counts when the charge is made.
• A stock gift counts when the shares reach the charity’s account. Brokerage transfers can take days or weeks, so start in early December.
• A QCD must leave the IRA by December 31. Ask your custodian about its cutoff date.

Charitable planning works best alongside the rest of your return. Our guide to year end taxes in West Palm Beach covers the other moves to review before December 31.

Mistakes That Shrink the Deduction

1. Giving the same modest amount every year and losing part of it to the floor each time.
2. Selling appreciated stock and donating the cash.
3. Taking an IRA withdrawal, then writing a check, instead of using a QCD.
4. Sending a QCD to a donor advised fund, which does not qualify.
5. Skipping the appraisal on real estate, art, or private company stock.
6. Starting a stock transfer in the last week of December.

Plan Your Giving With Tax USA

Tax USA helps high income families and business owners in West Palm Beach give more and keep more. Our certified preparers model your gifts against the new floor and cap before you commit. We compare cash, stock, a donor advised fund, and a QCD side by side, then handle the forms and records that protect the deduction. Planning before December 31 gives you the most options. Call 866-529-5558 or visit our office at 1892 Abbey Rd Ste J, West Palm Beach, FL 33415.

Frequently Asked Questions

What is the 0.5% floor on charitable deductions?

Starting in 2026, donors who itemize can deduct only the part of their gifts that exceeds 0.5% of adjusted gross income. With $1,000,000 of AGI, the first $5,000 given each year earns no deduction.

Does the 35% cap apply to every high earner?

No. It applies only to taxpayers in the 37% federal bracket. For 2026 that means taxable income above $640,600 for single filers or $768,700 for joint filers. Itemizers below that level face the floor but not the cap.

What is the most tax efficient way to donate in 2026?

For most high earners it is long term appreciated stock, because you avoid capital gains tax and still deduct the full value. For donors age 70½ or older, a qualified charitable distribution from an IRA is often better, since it avoids both new limits.

How much can I give through a QCD in 2026?

Up to $111,000 per person. A married couple with separate IRAs can give up to $222,000. The transfer must go directly from the IRA custodian to a qualified public charity.

Is a donor advised fund still worth it under the new rules?

Yes. A donor advised fund lets you bunch several years of gifts into one tax year, so the 0.5% floor applies once. You take the deduction now and send grants to charities over time.

Can I carry forward a charitable deduction I cannot use?

Gifts above the AGI ceilings carry forward for up to five years. Amounts lost to the 0.5% floor are generally gone, unless you also have a carryover from exceeding the ceilings.

Do charitable gifts reduce Florida taxes?

Florida has no personal income tax, so individual donors see no state benefit. The savings come from your federal return. Florida corporations follow separate state corporate income tax rules.

Can I deduct donations if I take the standard deduction?

Yes, starting in 2026. You can deduct up to $1,000 of cash gifts, or $2,000 on a joint return, without itemizing. Gifts to donor advised funds do not qualify.

Business tax receipt penalties in Palm Beach County start the day after your receipt expires. Every local business tax receipt in the county expires on September 30. If you have not renewed by then, the Palm Beach County Tax Collector adds a 10% penalty on October 1. That penalty climbs each month until it reaches 25%. Then a flat $250 fine lands on February 1. In 2026, September 30 falls on a Wednesday, so there is no weekend grace period.

The percentages sound small because the tax itself is small. The fines are not. A $250 penalty can cost several times more than the receipt. And if your business sits inside a city like West Palm Beach, you owe a second receipt to the city, with its own penalty and code enforcement risk. This guide covers the county schedule, the Florida law behind it, the city layer, and the fastest way to get current.

What a Local Business Tax Receipt Is

A local business tax receipt, often called a BTR, is the annual tax you pay for the right to do business in Palm Beach County. It used to be called an occupational license. Anyone selling goods or services in the county needs one. That includes one person operations and home based businesses.

A few points owners often miss:

• It is a tax, not a license. A BTR does not regulate your business or vouch for your work. State licenses from agencies like the Department of Business and Professional Regulation are separate.
• Out of county businesses may need one. If you normally serve the public in Palm Beach County, the county expects a receipt.
• The price varies. There is no single county fee. The amount depends on your business classification.

The Palm Beach County Penalty Schedule

Receipts renew from July 1 through September 30. Anything unpaid is delinquent on October 1. The Tax Collector then applies this schedule.

The April 1 fee comes from Revenue Recovery Solutions, the outside vendor that handles collection on unpaid accounts. By that point your account has left the Tax Collector’s normal renewal process.

What Waiting Actually Costs

Here is an example using a $60 receipt. Your real tax may differ by business type, but the pattern holds.

What Florida Law Says

Chapter 205 of the Florida Statutes governs local business taxes. Section 205.053 sets three separate penalty tiers.

Notice the second row. A new business that never registered faces the full 25% right away. A late renewal only reaches 25% after several months. Starting work before your receipt is issued is the more expensive mistake.

West Palm Beach Adds a Second Receipt

If your business is inside West Palm Beach city limits, you need two receipts. The city issues its own, and the county issues another. One payment never covers both.

The order matters. You get the city receipt first. City staff then sign Section 2 of your county application, which confirms zoning approval. Only then does the county issue its receipt.

The city follows the same calendar. Its fiscal year runs October 1 through September 30, renewals open July 1, and unpaid city taxes are delinquent on October 1 with a penalty added. The city also warns that operating without a valid receipt can lead to a code violation, which carries separate fines. First time city applicants pay one time inspection fees, and inspections must pass before the receipt is issued.

Wellington, Boynton Beach, Palm Beach Gardens, and other cities issue their own receipts too. If you rent out property in West Palm Beach, a rental tax receipt applies too. Our guide to West Palm Beach short term rental rules covers that side.

How Businesses Fall Behind Without Noticing

Most late receipts are not deliberate. They come from gaps like these.

• The renewal notice went to an old address. Notices go to the mailing address on file. State law makes the tax due by September 30 whether a notice arrives or not.
• You moved your business. A new location needs a new receipt, not just an address update.
• You closed but never told anyone. The county asks you to file its Closed Business Form right away. Until you do, the account can keep generating renewal bills.
• You paid only one government. Paying the county does not satisfy the city, and the reverse is also true.
• You opened in the spring. Receipts issued April through September are prorated but still expire September 30. Renew for the next year in the same transaction.

How to Clear a Delinquent Receipt

If you are already late, the fix is simple. Speed is what saves money, because the next penalty tier is always a month away.

1. Look up your account on the Tax Collector’s business tax search using your ten digit receipt number or business address.
2. Pay the county balance online, by mail, or in person with a reservation. The Tax Collector’s number is (561) 355-2264.
3. Pay the city balance separately if you are inside city limits.
4. If your account has moved to Revenue Recovery Solutions, ask for a full payoff figure before paying.
5. Update your mailing address and email so next year’s notice reaches you.
6. Set a calendar reminder for July 1, when the renewal window opens.

Exemptions Worth Checking

Florida law and county ordinance exempt some owners from the fee. The county lists these groups:

• Charitable, religious, fraternal, youth, civic, and service organizations
• Certain disabled persons, the aged, and widows with minor dependents
• Disabled veterans and their unremarried spouses
• Veterans, spouses of veterans, certain service members, and low income persons

Exemptions are not automatic. You file the county’s fee exemption request form. In West Palm Beach, even an exempt business must still obtain a receipt, and other city fees may still apply.

Let Tax USA Keep Your Receipts Current

Tax USA helps Palm Beach County owners stay compliant without tracking every local deadline themselves. Our certified tax professionals set up new city and county receipts in the right order, renew them inside the July to September window, and clear delinquent accounts before the next penalty tier hits. Our business filing services and bookkeeping services keep your receipts, sales tax deadlines, and federal filings on one calendar. Restaurant owners can also use our restaurant taxes in West Palm Beach checklist. If a notice has already reached collections, our tax resolution team can step in. Call (866) 529-5558 or visit our West Palm Beach office at 1892 Abbey Rd Ste J.

Frequently Asked Questions

When do business tax receipts expire in Palm Beach County?

Every receipt expires on September 30. The renewal window opens July 1. Unpaid receipts become delinquent on October 1.

What is the penalty for a late business tax receipt in Palm Beach County?

The county adds 10% on October 1, rising to 25% plus a $10 collection fee by January 1. A $250 fine follows on February 1, and a $75 collection fee on April 1.

What happens if I run a business without a receipt?

Florida Statute 205.053 imposes a penalty of 25% of the tax due. If you still do not pay within 150 days of the first notice, you face civil action, court costs, and up to $250 more.

Do I need both a city and a county receipt in West Palm Beach?

Yes. Businesses inside city limits need a City of West Palm Beach receipt and a Palm Beach County receipt. The city receipt and zoning approval come first.

Does a missing renewal notice cancel the penalty?

No. Florida law makes the tax due on or before September 30 each year. Keeping your mailing address current is your responsibility.

Is a new business receipt cheaper later in the year?

Yes. Receipts issued from April through September are prorated to six months. Receipts issued from October through March cost the full annual amount.

Florida rental property taxes work differently from almost every other state, and the difference costs uninformed landlords real money. Florida charges no personal income tax, so your rental profit is never taxed at the state level. Every dollar of federal deduction you claim stays in your pocket instead of being partly clawed back by a state return. That advantage is genuine. It is also the reason many Florida landlords assume their obligations end with a federal Schedule E, which is where the penalties start.

A Florida rental property can trigger four separate taxes, collected by three different agencies, on three different schedules. Federal income tax goes to the IRS in April. Sales tax and tourist development tax on short-term stays are due monthly, split between the Florida Department of Revenue and your county tax collector. County property tax arrives in November. Tangible personal property tax has an April 1 deadline that most furnished-rental owners have never heard of. Missing any one of them produces interest and penalties that have nothing to do with how profitable the property was.

The Four Taxes on a Florida Rental

Long-term leases of more than six months escape the two monthly taxes entirely. If your tenant signs a twelve-month lease, you owe federal income tax and county property tax, and nothing else. This is the single largest structural difference between a long-term rental and a vacation rental in Florida, and it should inform how you position the property before you buy it.

Federal Income Tax and Schedule E

Rental income is reported on Schedule E, attached to your Form 1040. You report gross rent received, subtract every ordinary and necessary expense of operating the property, and pay tax on what remains at your ordinary income rate.

Rental income is generally not subject to self-employment tax, a 15.3% saving compared with active business income. The exception is providing substantial services to guests, such as daily cleaning or meals, which can push a short-term rental into business territory.

Deductible expenses on a Florida rental include:

• Mortgage interest, reported on your lender’s Form 1098
• County property taxes paid
• Property insurance, including windstorm and flood coverage
• Repairs and maintenance
• Property management fees
• HOA and condo association dues
• Advertising and tenant screening
• Legal and professional fees
• Travel and mileage to the property
• Depreciation

Depreciation Is the Deduction Most Owners Underclaim

Residential rental property depreciates over 27.5 years. Land never depreciates, so you must separate the two before you calculate anything.

On a $400,000 purchase where the county attributes $120,000 to land, your depreciable basis is $280,000. Divided by 27.5, that produces roughly $10,182 in annual depreciation. For an owner in the 24% bracket, that line item is worth about $2,443 a year and requires no cash outlay.

Depreciation is not optional. The IRS calculates your gain on sale as if you claimed it whether you did or not. An owner who skips depreciation for eight years pays recapture tax on deductions they never received.

Short-Term Rentals: Where Palm Beach County Owners Get Caught

Any stay of six months or less is a transient rental. Two taxes apply on top of each other.

The state charges a 6% transient rentals tax, plus the county discretionary surtax. Palm Beach County’s combined sales tax rate is 6.5% as of January 1, 2026, down from 7%, after voters approved a 0.5% school capital outlay surtax that replaced the expiring 1% infrastructure surtax. Palm Beach County then adds a 6% tourist development tax, often called the bed tax, remitted separately to the Constitutional Tax Collector. Total tax on a short-term booking runs roughly 12.5%.

Here is the part that generates audit letters. Airbnb collects and remits Florida’s 6% state transient rentals tax and the county surtax on your bookings. Airbnb does not collect Palm Beach County’s tourist development tax, because it has no direct agreement with the county. VRBO collects nothing at all. Owners see a taxes-collected line on their Airbnb payout report, reasonably assume everything is handled, and never register a TDT account. The 6% county tax accrues silently, and the county assesses interest and penalties when it catches up.

The tourist development tax applies to mandatory fees as well, including cleaning fees and pet fees, not just the nightly rate. Returns are due on the first of the month and are late after the 20th.

County Property Tax and the 10% Cap

County property tax bills are mailed in November and are due by March 31. Florida offers early payment discounts of 4% in November, 3% in December, 2% in January, and 1% in February. Paying in November on a $6,000 bill saves $240 for doing nothing but writing the check early.

Two exemptions that protect Florida homeowners do not protect landlords. The homestead exemption applies only to a primary residence, and the Save Our Homes 3% assessment cap goes with it. Convert a home you lived in to a rental and you lose both, and the property is reassessed at just value the following January 1. Owners converting a long-held homesteaded property are frequently shocked by the first bill.

Rental property gets weaker protection. Florida caps annual assessment increases on non-homestead property at 10%. The cap resets when ownership changes, so a newly purchased rental is reassessed at market value before the cap begins to apply.

The Tangible Personal Property Tax Nobody Mentions

If you rent a furnished property, the furniture, appliances, and equipment are tangible personal property, and they are taxable. You file Form DR-405 with the county property appraiser by April 1.

The first $25,000 of assessed value is exempt, which covers many single-unit furnished rentals. The exemption is not automatic. You have to file an initial return to claim it. Owners who never file can face penalties and lose the exemption entirely.

What Changed: Commercial Rent Tax Repealed

Florida repealed its sales tax on commercial rent effective October 1, 2025, under House Bill 7031. Florida was the only state that taxed business rent, and it is now gone for office, retail, warehouse, and self-storage leases. Short-term residential rentals, parking spaces, and boat slips remain taxable. Rent covering occupancy through September 2025 still owes the old tax, even if the tenant paid late.

When Your Rental Loss Gets Blocked

Rental activity is passive by default, and passive losses can only offset passive income. A special allowance lets owners who actively participate deduct up to $25,000 of rental loss against ordinary income. That allowance phases out between $100,000 and $150,000 of modified adjusted gross income and disappears completely above $150,000. Blocked losses are not lost. They carry forward and release when you sell the property.

Short-term rentals with an average guest stay of seven days or fewer are not treated as rental activities under the passive loss rules. With material participation, those losses can offset W-2 income without real estate professional status. This is one of the few remaining strategies that meaningfully reduces high earners’ tax bills, and it is also heavily scrutinized, so contemporaneous time records matter.

What You Owe When You Sell

Long-term capital gains on appreciation are taxed at 0%, 15%, or 20% depending on income. Depreciation recapture is taxed separately at up to 25%. Higher earners add the 3.8% net investment income tax above $200,000 for single filers and $250,000 for joint filers. A 1031 exchange defers all of it if you reinvest into like-kind property within the required 45-day and 180-day windows.

Getting It Right the First Time

Tax USA has handled rental property returns for Palm Beach County landlords since long before short-term platforms complicated the picture. Our team of certified tax experts, IRS enrolled agents, and CPAs prepares Schedule E returns, sets up depreciation schedules correctly from year one, registers short-term rental owners for sales tax and tourist development tax accounts, files DR-405 tangible personal property returns, and structures 1031 exchanges. We also represent owners who are already behind, whether that means unfiled TDT returns or an IRS notice about disallowed rental losses. Bookkeeping, payroll, and tax resolution run under the same roof, which matters when a rental portfolio grows into a business. Call (866) 529-5558 or visit our West Palm Beach office at 1892 Abbey Rd Ste J for a free consultation.

Frequently Asked Questions

Do I pay Florida state income tax on rental income?

No. Florida has no personal income tax. Rental profit is taxed only at the federal level on Schedule E.

Do I owe sales tax on a long-term rental in Florida?

No. Leases longer than six months are exempt from both the transient rentals tax and the tourist development tax.

Does Airbnb pay my Palm Beach County tourist development tax?

No. Airbnb remits the state sales tax and county surtax but not the 6% Palm Beach County TDT. You must register with the county tax collector and remit it monthly yourself.

Can I keep my homestead exemption if I rent out my house?

No. The homestead exemption and the Save Our Homes cap apply only to a primary residence. Renting the property out ends both.

How much depreciation can I claim on a Florida rental?

Divide the building value, excluding land, by 27.5. A $280,000 depreciable basis yields about $10,182 per year.

An excise tax is different from a sales tax in three clear ways: what it targets, how it is calculated, and who sends the money to the government. An excise tax applies only to specific goods and services, such as gasoline, cigarettes, alcohol, and airline tickets. A sales tax applies broadly to most retail purchases in a state. Excise tax is usually charged as a flat amount per unit and is baked into the shelf price before you ever reach the register. Sales tax is a percentage of the purchase price, and it appears as a separate line on your receipt.

That difference matters most to business owners. If you sell taxable goods at retail, you register with your state, collect sales tax from the buyer, and file a state return. If you manufacture, import, or sell products on the federal excise list, you owe the tax yourself and report it quarterly on IRS Form 720. The two obligations are separate. Meeting one does not satisfy the other, and many businesses owe both.

Excise Tax vs Sales Tax

What Is an Excise Tax?

An excise tax is a selective consumption tax on a narrow list of products, services, and activities. Economists call it an indirect tax because the business pays it first and then builds the cost into the price. The buyer carries the burden without seeing a line item.

The federal government uses excise taxes for two reasons. The first is targeted funding. Fuel excise taxes flow into the Highway Trust Fund and pay for roads and bridges. The second is behavior. Higher prices on tobacco and alcohol reduce consumption, which is why people call these levies sin taxes.

Specific and Ad Valorem Excise Taxes

Excise taxes come in two forms, and the difference changes your math.

• Specific excise tax. A fixed dollar amount per unit. Federal gasoline tax is $0.184 per gallon in 2026. Diesel and kerosene run $0.244 per gallon. The rate stays the same whether fuel costs $3 or $5.
• Ad valorem excise tax. A percentage of the sale price. Large cigars are taxed at 52.75% of the manufacturer’s price, capped at 40.26 cents per cigar. Domestic air travel carries a 7.5% ticket tax.

What Is a Sales Tax?

A sales tax is a broad consumption tax on retail transactions. The state sets a base rate, and counties and cities often add their own. Combined rates in some jurisdictions pass 10%.

The buyer legally owes the tax. The seller acts as a collection agent, holds the money in trust, and remits it to the state on a monthly or quarterly schedule. Forty-five states plus the District of Columbia charge a statewide sales tax. Alaska, Delaware, Montana, New Hampshire, and Oregon do not, though Alaska allows local sales tax.

Sales tax obligations follow nexus. After the Supreme Court ruling in South Dakota v. Wayfair, a business can trigger a filing duty in a state through sales volume alone, with no office or warehouse there.

Can You Pay Both Taxes on the Same Purchase?

Yes, and this is where most explanations stop short. Excise tax and sales tax stack, and the sales tax is usually calculated on a price that already includes the excise tax.

Take a pack of cigarettes bought in New Jersey. The federal excise tax adds $1.01 per pack of 20. New Jersey adds a state cigarette excise tax of $2.70 per pack. Both amounts sit inside the shelf price. New Jersey then applies its 6.625% sales tax to that full shelf price, including the $3.71 of excise tax already embedded in it. The buyer pays tax on top of tax.

Airline tickets work the same way. On a $240 domestic fare with one stopover, the federal excise charge is $28.60. That is the 7.5% ticket tax plus $5.30 for each of the two flight segments.

Fuel is the exception worth knowing. Most states exempt gasoline from sales tax because motor fuel already carries heavy federal and state excise taxes.

Who Files Which Tax

Federal Excise Tax and IRS Form 720

Businesses report most federal excise taxes on Form 720, the Quarterly Federal Excise Tax Return. Due dates are April 30, July 31, October 31, and January 31.

If your net liability for Part I taxes tops $2,500 in a quarter, you must also make semimonthly deposits through EFTPS. Deposits are due by the 14th day after each semimonthly period. Part II items, including the PCORI fee, are paid with the return instead.

Alcohol and tobacco follow a separate track. The Alcohol and Tobacco Tax and Trade Bureau collects those taxes, and producers need a TTB permit and a bond before they operate.

State Sales Tax

Sales tax never touches Form 720. You register for a seller’s permit in each state where you have nexus, collect at the correct local rate, and file with that state’s revenue department. Rates change often, and rules on what counts as taxable vary widely by state.

2026 Excise Tax Changes to Watch

Several federal excise rules shifted this year, and missing them creates penalty exposure.

• Remittance transfer excise tax. The One Big Beautiful Bill Act created a 1% tax on certain money transfers made after December 31, 2025. It is reported as IRS No. 155. The IRS granted limited deposit penalty relief for the first three quarters of 2026.
• PCORI fee. The rate is $3.84 per covered life for the current filing period.
• Air transportation. The domestic segment fee rose to $5.30. The international facility fee is $23.40, or $11.70 for Alaska and Hawaii.
• Expired taxes. Oil spill liability taxes, IRS Nos. 18 and 21, ended after December 31, 2025.

Is Excise Tax Deductible? Is Sales Tax?

For a business, federal and state excise taxes paid on goods you produce or sell are generally deductible as an ordinary business expense. They are a real cost of doing business.

Sales tax you collect from customers is different. It is never your income and never your deduction. You hold it as a liability until you remit it. Sales tax you pay on business supplies is deductible, usually as part of the cost of the item.

Individuals who itemize may deduct state and local sales tax under the SALT rules, in place of deducting state income tax. Excise taxes on personal purchases, such as the tax inside a gallon of gas, are not deductible.

Common Excise Taxes in the United States

• Gasoline, diesel, and aviation fuel
• Cigarettes, cigars, and other tobacco products
• Beer, wine, and distilled spirits
• Airline tickets and cargo transport
• Indoor tanning services
• Heavy trucks, trailers, and highway use
• Firearms and ammunition
• Gas guzzler vehicles
• Certain health insurance and self-insured plans, through the PCORI fee

Frequently Asked Questions

Is excise tax the same as sales tax?

No. Excise tax hits a short list of specific products and is usually a flat amount per unit built into the price. Sales tax hits most retail purchases and is a percentage added at checkout.

Who pays excise tax, the buyer or the seller?

The manufacturer, importer, or retailer is legally responsible and files the return. The cost is passed to the buyer through a higher price, so the consumer ultimately bears it.

Do I pay sales tax on top of excise tax?

Usually yes. Sales tax is calculated on the retail price, which already contains the excise tax. Motor fuel is the common exception, since most states exempt it from sales tax.

Which form is used to report federal excise tax?

IRS Form 720, the Quarterly Federal Excise Tax Return. It is due April 30, July 31, October 31, and January 31.

Do all states charge sales tax?

No. Alaska, Delaware, Montana, New Hampshire, and Oregon have no statewide sales tax. Alaska still permits local jurisdictions to impose one.

Is excise tax a direct or indirect tax?

It is an indirect tax. The business remits it to the government, and the economic burden shifts to the consumer through pricing.

Get Your Excise and Sales Tax Filings Right With Tax USA

Excise tax and sales tax follow different rules, different deadlines, and different agencies. A missed Form 720 deposit or an unregistered sales tax nexus can cost far more than the tax itself. Tax USA helps business owners sort out which taxes apply, register correctly, and file on time. Our team handles business filing, bookkeeping, year-end tax planning, and tax resolution for clients across the country. Call Tax USA at 866-529-5558 or schedule an appointment today, and let us simplify your tax obligations.