Sales Tax on Business Expenses: What US Freelancers Need to Know
How sales tax works on your business purchases, whether it's separately deductible, when you might need to collect it from clients, and why tracking it matters for your records.
Jennifer Walsh
CPA, Tax Advisor
US sales tax on business purchases isn't separately refundable — but it is deductible. The sales tax is treated as part of the total cost of the purchase, so the full amount (including tax) is a legitimate business expense on Schedule C.
How Sales Tax Affects Your Deductions
When you buy a $200 software license and pay $18 in sales tax, your deductible expense is $218 — the full amount. The IRS doesn't require you to separate the sales tax from the purchase price on Schedule C; the total cost is the deduction.
State Income Tax Deduction (Sales Tax Alternative)
On Schedule A (if you itemize), you can deduct either state income taxes or state and local sales taxes — not both. For freelancers in no-income-tax states like Texas, Florida, or Washington, tracking cumulative sales tax paid throughout the year can yield a meaningful itemized deduction.
When You May Need to Collect Sales Tax
If you sell taxable products or certain services, you may be required to collect and remit sales tax to your state. Service taxability varies widely by state — digital services, consulting, and SaaS products are taxable in some states but not others. Check your state's revenue department rules or consult a CPA if you're unsure.
ReceiptOne records the sales tax on every receipt automatically — clean records for Schedule C and a running total for state tax deduction purposes.
Nexus and Online Sales
After the 2018 South Dakota v. Wayfair Supreme Court decision, states can require out-of-state sellers to collect sales tax once they meet economic nexus thresholds — typically $100,000 in sales or 200 transactions per year. If you sell products online to customers in multiple states, this affects you regardless of your physical location.