GRAND RAPIDS – New for tax years 2004 and 2005 – if you itemize on your tax return you can deduct whatever you paid more of – state and local income taxes or state and local general sales taxes.
What this means is you need to total up the amount of sales tax paid or use the applicable amount from the optional state sales tax tables provided by the IRS. In most cases the state and local income taxes paid will be larger, but in certain cases you may be able to write off more from the sales tax option.
Taxpayers will want to consider the amount of big purchases made during the year – such as cars and boats – that will qualify them for a larger deduction under the sales tax deduction option. The sales tax for these large purchases can be added to the amount taken from the optional sales tax table. However, keep in mind that it is one or the other, not an additional deduction.
The IRS does want to make clear that you should not include sales tax paid on items used in your trade or business, because these taxes are included and deducted on the business or in the business assets.
Where is this deduction taken? If you are not itemizing, of course, there is no benefit since the sales tax deduction is an itemized deduction taken on schedule A. It will be a straight reduction of income below the line and is not subject to any income amounts other than total itemized deduction limitations.
If you have further questions, call Buchholz & Associates, PC, and ask to speak to one of our tax consultants. Our telephone number is (616) 530-5881. Or you can email us at [email protected]
