Tax Tip: Choose the 'Biggest and Best' State Tax Deduction
by AccountingWEB on
By Ken Berry
Are your clients better off deducting income tax or sales tax on a 2011 return? It depends on the situation. But they should be made aware of a special tax break for sales tax deductions.
An itemizer on a 2011 return can deduct annual state and local income taxes or, as an alternative, sales tax paid during the year. But it's either one or the other. For residents of states with no income tax, or states with a relatively low income tax rate, the decision to deduct sales tax is a no-brainer. But taxpayers in high-tax states must do both calculations and compare. Then you can simply choose the deduction that produces the better tax result.
Because few taxpayers keep all the receipts needed to back up a sales tax deduction, the IRS conveniently allows you to claim an amount based on its state-by-state tables, found on page A-11 of the 1040 Schedule A instructions. The amount is based on the taxpayer's income and number of exemptions. Of course, the IRS-approved amount is likely to be lower than the amount of actual sales tax paid during the year, but it's a lot easier to figure out.
Icing on the cake: If your client bought a vehicle or a boat in 2011, the amount of the sales tax may be added to the amount already listed in the IRS tables. This also applies to sales taxes paid on the purchase of a home, including a mobile home or a prefabricated residence as well as home building materials. The extra write-off could provide an edge to the sales tax deduction over state and local income taxes.
Although the alternative deduction for sales tax officially expired after 2011, it's expected to be renewed again for 2012. But don't hold your breath.
You may like these other stories...
OECD calls for coordinated fight against corporate tax avoidanceDavid Jolly of the New York Times reported that dozens of countries with the most advanced economies have agreed on principles for concrete action to prevent...
Plan ahead before you buy some shares in a stock mutual fund near yearend, when the fund is about to pay a dividend. It might be better to wait until after the fund goes "ex-dividend," that is, wait until after the...
AgFeed agrees to pay $18 million to settle SEC accounting fraud caseMichael Rapoport of the Wall Street Journal reported on Monday that AgFeed Industries Inc. has agreed to pay $18 million to settle US Securities and...
Upcoming CPE Webinars
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.
Many Excel users have a love-hate relationship with workbook links. For the uninitiated, workbook links allow you to connect one Microsoft Excel spreadsheet to other spreadsheets, Word documents, databases, and even web pages.