New Sales Tax Deduction Option
Taxpayers always are or should be looking for potential new twists that can create tax savings to cut your tax bill. Congress has modified the tax code once again, creating a potential significant tax break.
New Sales Tax Deduction Option
The American Jobs Creation Act of 2004 provides taxpayers with the option to claim state and local sales taxes instead of state and local income taxes when itemizing deductions. The sales tax deduction option is only available for the 2004 and 2005 fiscal years.
If you purchased a high cost item during 2004 or will do so in 2005, you may find that the total sales tax you pay far exceeds your state and local income tax payments. If so, you should determine whether you should claim a larger deduction by using the IRS Optional State Sales Tax Tables. Importantly, the total sales tax amount is not the deduction. Instead, you must use the table to determine the amount of the deduction. The Optional State Sales Tax Tables can be found in IRS publication 600.
The new sales tax deduction is a windfall for taxpayers in Alaska, Florida, Nevada, Texas, Washington, South Dakota and Wyoming. These states do not tax the income of their residents, which makes the sales tax deduction a very valuable deduction indeed! Regardless, taxpayers in all states should consider their purchases throughout the year and the possibility of claiming a sales tax deduction.