I’ll admit it—I deeply dislike paying taxes. Even though I know why we need to pay tax, and even though I support many of the programs my tax dollars fund, I would still prefer to keep those dollars in my bank account with the others. Paying taxes of any kind is sort of like paying for new tires or a root canal—it makes sense over the long term, it helps people (in these cases, me), and it’s required for optimal health (i.e. to stay out of jail).

But I still don't like it.

And here is where my affection for couponing really hits an all-time high. As it turns out, couponing can actually help me save on taxes. Yahoo! Read on to find out how.

Wherever possible, limitations that may be in effect from state to state are noted here. As always, be sure to read the fine print and ask any tax questions you have about an offer or coupon before using it!

1. Retailer coupons are not subject to sales tax.

According to the Tax Foundation, when you present your coupon at checkout, the discount will be deducted from your total, and then the sales tax will be applied to what remains.

Example:

  • You buy a blouse for $25.
  • You apply a coupon for $5 off.
  • Your total is now $20.
  • If you live in Texas, like I do, in most counties the sales tax is 8.25%.
  • You will only be charged sales tax on $20 ($1.65) instead of $25 ($2.06).
  • You save $0.41 in taxes ($2.06 – $1.65 = $0.41)

Note: This only applies to retailer-issued (and not manufacturer-issued) coupons in most states. However, if you are lucky enough to live in Texas, Connecticut, Massachusetts and Pennsylvania, both types of coupons are applied before the sales tax is calculated.

2. If you earn money from couponing, you don't have to report that as "income" at tax time.

According to Turbo Tax, if you earn money from coupon rebates, or if you earn cash back, you do not have to report that as income at tax time in most cases. The reason is simple: the IRS categorizes these "earnings" as "discounts" rather than income.

Note: The big exception to this rule comes when you are self-employed and the reduction in price impacts what you write off for your business expenses. So if you buy a new laptop for $1,000 but get a $200 rebate back, you can only write off $800 worth of expense at tax time.

3. If you earn cash back or cash incentives from couponing with your credit card, you don't have to report it as income at tax time.

The reason for this, according to Bankrate, is basically the same as for #2—the IRS does not treat cash back or cash incentives (such as sign-up bonuses) as income. In the case of incentives, since they typically require you to do something (such as make a certain number of transactions within a certain period of time), these are viewed as requirements of participation, not as income. In the case of cash back rewards, these are viewed as rebates rather than as income.

Note 1: If you win a big cash sweepstakes or contest prize, such as $10,000, this does count as income and must be reported to the IRS.

Note 2: Just to be sure, read the fine print before you sign up for incentive deals. In some cases, the fine print will stipulate that the retailer will send you a 1099 for miscellaneous taxable income at year-end. In these cases, it may not make good financial sense to participate in the offer.

4. In some cases, you can write off the current market value of your coupon-based charitable contributions.

According to Dineson Tax & Accounting, so long as you have held the items you plan to donate for at least 12 months + 1 day, you can deduct the full "current market value" of the items as charitable contributions if you itemize at tax time. However, if you have held the items for 12 months or less, you can only deduct what you actually paid (after coupons) for the items.

5. Shopping with coupons on sales tax-free weekends can save you even more.

Most states offer sales tax-free shopping weekends one or more times per year. This helps both merchants and customers. When you shop for items during a sales tax-free weekend, you can save in two ways—on the sales tax for the item, and on the discount the coupon gives you (see #1 for limits).

Example:

  • You have your eye on a laptop priced at $1,000.
  • You have a retailer's coupon for $150 off.
  • Plus, it is a sales tax-free weekend.
  • $1000 – $150 = $850.
  • $850 * $.0825 = $70.13.
  • Your total savings: $150 + $70.13 = $220.13!
5 Key Ways Couponing Can Help You Save on Paying Taxes