What is the Sales Tax Deduction? Under the American Jobs Creation Act of 2004, a taxpayer can select to deduct the sum paid for local and state sales taxes ("SST").
Taxpayers must choose between these deducting sales tax or state income tax paid.
The deduction is more efficient for taxpayers who reside in a state with no income tax (such as Texas, Florida, etc...
), or whose SST deduction is larger than their state income tax deduction.
There are two ways to calculate this new deduction: 1) "Actual Expenses", and 2) "Optional Tax Table".
In addition to the Optional SST Table, a Taxpayer can claim amounts paid on the following: 1.
Motor vehicle, but only up to the amount paid at the general SST rate; and 2.
Aircraft, boat, home (including mobile or prefabricated), or home building materials, if the tax rate is the same as the general SST rate.
Which Records You Must Keep Supporting This Deduction? Under Actual Expenses a taxpayer must Keep all of his/her sales tax receipts, and sum up the total amount of sales tax actually paid throughout the tax year.
Under the second way, "Optional Tables" taxpayer uses the amount provided in the IRS calculator and adds sales taxes paid on the purchase or lease of a vehicle, boat, aircraft, payment for substantial addition or major renovation of a home.
IRS Publication 600 provides much more information, examples and calculations that are designed to edcuate taxpayers on this recent addition to the itemized deductions family.
You can obtain a copy of Publication 600 from the IRS Web site at http://www.
irs.
gov, or order it by calling (toll-free) 1-800-TAX-FORM (1-800-829-3676).
The IRS has mailed Pub.
600 to all taxpayers who received a Form 1040 tax package.
Where do I report this expense? Sales Tax Deduction is claimed as part of the itemized deductions on IRS form 1040, Schedule A, Line 5.