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Is Your State & Local Sales Tax Deductible?
A new tax rule (effective for the first time starting with the 2004 tax year) allows you to deduct state and local general sales taxes instead of state and local income taxes. You cannot deduct both. Although this may not do much for some of our friends in states with high income taxes, for those of us who claim Florida as their primary residence, this new rule may be a real plus since we don’t pay any state or local income taxes.
Here’s how it works. First of all, these taxes are now deductible as an itemized deduction on Schedule A (Form 1040) along with items such as your home mortgage interest, property taxes on your home, donations, etc., so if you are using the standard deduction, this is of no help to you. Aside form that, it’s really pretty simple. You can elect to save your receipts and deduct your actual expenses, or if you’d prefer, the IRS provides an “Optional State Sales Tax Table” that will allow you to pinpoint your deduction based on your income and number of exemptions. You can use the method that offers you the biggest deduction.
Although you can’t be certain until you compare, it might be advisable to go through the trouble of saving receipts if you anticipate big expenses for the year. Purchases of a car or truck, and/or motor home, and/or boat, etc., may help you realize a deduction greater than allowed in the IRS table.
For specifics, please see IRS Publication 600. You can find this 6 page publication at the “Forms & Publications” section of the IRS web site: www.irs.gov
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