The Internal Revenue Service has released tax tables to help taxpayers determine whether they would benefit from an optional new sales tax deduction.
Under the American Jobs Creation Act of 2004, for tax years 2004 and 2005, taxpayers who itemize deductions can choose to deduct state and local sales tax instead of state and local income tax. Taxpayers indicate by a checkbox on Line 5 of Schedule A which type of tax they're claiming.
The Optional State Sales Tax Tables, which taxpayers may use for their 2004 returns, are available on the IRS Web site, www.irs.gov. The IRS also will send Pub. 600 to all taxpayers who get a Form 1040 tax package. The AJCA was enacted too late in the year to include the tables in the tax instruction books.
Taxpayers can check the tables to see if they're entitled to a larger sales tax deduction than a state income tax deduction, and use the amount from the tables rather than saving their receipts throughout the year and tabulating the amount actually paid. Taxpayers use their income level and number of exemptions to find the sales tax amount for their state. The table instructions explain how to add an amount for local sales taxes, if appropriate.
Taxpayers also may add to the table amount any sales taxes paid on a motor vehicle, but only up to the amount of tax paid at the general sales tax rate; and an aircraft, boat, home (including mobile or prefabricated), or home building materials, if the tax rate is the same as the general sales tax rate.
Though the IRS said that the deduction will mainly benefit taxpayers with a state or local sales tax but no income tax - those in Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming - it may give a larger deduction to a taxpayer who paid more in sales taxes than income taxes, such as a person who bought a new car, boosting the sales tax total, or claimed tax credits, lowering the state income tax paid.
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access