Duty-Free Savings

If your traveling abroad this summer and plan to shop duty-free there are a few things you should know. Though duty-free shops can be tempting, they're not always a good deal. SmartMoney's Kelli Grant gives tips on how to save the most money at duty-free shops.

Just because an item is purchased duty-free doesn't mean you won't pay taxes on it so be sure to check customs restrictions. For most trips, U.S. citizens are allowed to bring or mail back $800 worth of gifts and purchases without paying an additional tax. Some items are further restricted. For example, you can only bring back two bottles of alcohol untaxed.

Find out what the local tax rate is. Buying at the duty-free shop makes more sense if the tax rate is particularly high in your home state or the country you're visiting. New Zealand, for example, taxes goods and services at 12.5%; Russia has a value-added tax of 10% to 18%.

Shoppers hoping to snag a favorite item that is sold in the U.S. should price hunt at home before heading abroad. That way, they'll know whether a particular item is a steal or a rip-off. Usually, items that are heavily taxed in the United States, namely, cigarettes and alcohol, are where you'll see bigger savings of 30% to 50%. Other items like cosmetics and clothing might be only $5 to $10 less expensive, if that.

When buying souvenirs stick to items manufactured in the country you're leaving. Think of it this way: American products in a foreign duty-free shop had to be shipped there. It's almost always going to be more expensive than buying at home. Before leaving for your trip, research about what items are popular souvenirs as well as their going rates if available in the U.S.

Be aware of luggage restrictions. Travelers can carry on purchases from the airport duty-free shop. But if you're connecting from an international to a domestic flight, you have to clear customs after arriving in the United States and then head back through security. That means any bottles of perfume, alcohol and cosmetic lotions that are larger than 3 ounces have to go in a checked bag. Make sure you have enough room - and that the purchases won't make the bag overweight. Those fees start at $50.

For more information on shopping duty-free and other consumer tips click here.
Kelli Grant & Erika Wortham