Tax question (Sales Tax deductable now)

[ibDursty]

I've heard that sales taxes are tax deductable now. Can somebody explain how this works now? I've heard that it's most beneficial you live in a state that doesn't have state income tax and you've purchased many big ticket items in one year. Maryland has state income tax and sales tax so would this new tax law have any possible benefit?

 

[T Bolen]

Found this on Bankrate.com:

"Most of the 633 pages of the American Jobs Creation Bill of 2004 deal with taxes on and tax breaks for businesses. But sandwiched in the tax tome, approved by Congress and signed into law by the president, is the OK for consumers to deduct sales taxes from their federal filings. The deduction will be available on 2004 and 2005 tax returns.

But don't grab your credit card and head to the mall just yet. This tax break isn't an add-on; it will require you to choose. You must decide whether you want to deduct the sales taxes you paid or your state income tax amounts.

The choice is obvious for residents of the seven states that do not collect state income taxes but do levy state sales taxes: Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming. The measure also allows for deductions of local sales. This again benefits residents who pay local sales taxes in the seven non-income-tax states, as well as some Alaska residents. Alaska has no individual income or state sales tax, but some jurisdictions do charge local sales taxes."

Looks like you have to choose between a sales tax deduction or a state income tax deduction. This will definately be a plus for us in Florida, as we don't have a state income tax. It may be time to get a new toy!

 

[nsxtasy]

Tom is correct. Here's what it says on the Internal Revenue Service website:

Sales Tax Deduction — Taxpayers who itemize deductions will have a choice of claiming a state and local tax deduction for either sales or income taxes on their 2004 and 2005 returns. The IRS will provide optional tables for use in determining the deduction amount, relieving taxpayers of the need to save receipts throughout the year. Sales taxes paid on motor vehicles and boats may be added to the table amount, but only up to the amount paid at the general sales tax rate. Taxpayers will check a box on Schedule A, Itemized Deductions, to indicate whether their deduction is for sales or income taxes.

According to the instructions for Schedule A, the optional tables for determining the amount of the sales tax deduction (to use instead of adding up actual sales tax amounts on transactions) will appear in the IRS's Publication 600. However, this publication is not yet available on the IRS website.

 

[ibDursty]

I guess I have to wait until the tables are published to determine if this is going to be a benefit or not. You can use the the table amount plus the big ticket items so that might make it worth it for me this year since I bought two cars this year for an extra 3900 in sales tax. I'm guessing the table amount of sales tax will be about $1100 for me so that works out to 5k in sales tax for this year.