Has there been much media coverage of it?
Posted on 12/20/2004 1:39:06 PM PST by Constitutionalist Conservative
Thanks to a multibillion-dollar corporate tax bill, individual taxpayers are getting a new tax break.
Most of the 633 pages of the American Jobs Creation Bill of 2004 deal with taxes on and tax breaks for businesses. But sandwiched in the tax tome, approved by Congress and signed into law by the president, is the OK for consumers to deduct sales taxes from their federal filings. The deduction will be available on 2004 and 2005 tax returns.
But don't grab your credit card and head to the mall just yet. This tax break isn't an add-on; it will require you to choose. You must decide whether you want to deduct the sales taxes you paid or your state income tax amounts.
The choice is obvious for residents of the seven states that do not collect state income taxes but do levy state sales taxes: Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming. The measure also allows for deductions of local sales taxes. This again benefits residents who pay local sales taxes in the seven non-income-tax states, as well as some Alaska residents. Alaska has no individual income or state sales tax, but some jurisdictions do charge local sales taxes. (New Hampshire also lacks an income or state sales tax, but does charge consumers a tax on meals and room and vehicle rentals.)
"All taxpayers will get the chance to choose which deduction to take," says Stephens, press secretary to Rep. Kevin Brady (R-Texas), who was one of the original backers of the law. "Basically, it will be up to the individuals to do the math and see which deduction, state income taxes or sales taxes, will save them more."
Figuring your sales-tax break
The sales tax deduction will be available to filers who choose to itemize their expenses on Schedule A. And they will have two ways to determine just how big their sales tax deduction will be.
You can keep claim the total sales taxes you actually paid based on the amounts shown on your receipts. Just be sure to hang onto those register tapes in case the Internal Revenue Service has a question about how you arrived at your deduction amount.
Or you can claim the amount you'll find in newly created sakes tax tables that the U.S. Treasury, the department that oversees the IRS, has developed. The sales-tax deduction tables are based on the average consumption by taxpayers, taking into account filing status, number of dependents, adjusted gross income and rates of state and local general sales taxation. And because sales tax rates vary from state to state (and even by localities within a state), the Treasury has come up with 46 different tables.
Most taxpayers probably will opt for the ease of using the deduction amount provided in the official tables. But taxpayers should make sure they use the sales-tax deduction that gives them the biggest break.
"Every family would be a little different," says Stephens. "A family with a new baby might spend a tremendous amount of money outfitting a new nursery and find that they're better off adding up their actual sales tax receipts. They could look at the table and say 'we get a $450 deduction, but we've got receipts for $500.'"
Added sales tax break for cars, boats
There's also a hybrid option, notes Stephens, that could help consumers who purchased, and paid a hefty sales tax, on a car or boat. In these cases, the new law allows taxpayers to claim the standard deduction and then also add in the tax on the road or marine vehicle.
Plus, the legislative language gives the Treasury Secretary discretion to include "other items" that he determines are appropriate to this add-on deduction. For example, says Stephens, this could be appliances that cost over a certain amount.
Even residents of states without income taxes might be able to save more on their federal returns using the sales-tax break.
"It's conceivable that people who buy a car in a location with a high sales tax and moderate state income tax would do better by foregoing their normal income tax deduction, but until there's a little more clarity on just how the deduction will work, it's hard to know for certain," says Mark Luscombe, attorney, CPA, and principal federal tax analyst for tax publisher CCH Inc. of Riverwoods, Ill.
Has there been much media coverage of it?
This is the first I have heard of it. I am going to have to bookmark this thread and find other information on it. Time to start saving every receipt!
For us CPA types this has been part of our planning since it passed. They had to do something for equity's sake in the area of State Tax Deductions.
This also makes up for the fact that the "Suburban/Yukon" vehicle write-off rules have gone by the wayside. In the prior years since these big SUV's had gross vehicle weights of greater than 6,000 lbs., they qualified for write-off under the terms of our friend the Section 179 deduction. And what was not written off was subject to the additional depreciation deduction. Those days are over. Hopefully, the sales tax deduction can make up enough of the loss to not have this loss harm the large SUV market.
In prior years we had all our clients buying these vehicles before any others due to the tax benefits.
What happened originally is that congress critters from states with no state income tax got this provision included for their states in order to give their constituents a break. Other congress critters caught on and in had it expanded to include everyone.
This is a pleasant surprise but the IRS tables for automatically allowable amounts are on the low side in my opinion. So the question is, do you want to save those receipts???
I think if one diligently saved their receipts in Colorado you would come out ahead but it is a lot of effort!
CNBC has covered it several times. Unfortunately, it is one more complexity that takes more time and drives more filers to pay for professional tax preparation services. The tax code is an enormous drag on the US economy and I worry that the upcoming simplification effort will only make it worse.
Second time I've heard of it, both times on FR...
I THINK this deduction has been available for a long time. They allow you to deduct according to a table or by keeping receipts. For one entire year @15-20 years ago, I kept receipts in a huge bag! At the end of the year, the table deduction was within a few percentage points of my receipts. If I recall correctly, the table gave me a better break than my receipts!
BTTT
It is worth every penny I spend on my CPA. I do not have the time, energy, or knowledge to properly do my taxes. And his vast knowledge saves me a lot of money in taxes that I wouldn't get on my own.
I do however tell him all the time that I would like to see him put out of business with a flat tax or NRST.
Bookmarked.
Really? I can take the standard and deduct the roughly 1500 in sales tax for the car I bought in February.
Merry Christmas to me.
Ditto!!
YOu worry about upcoming simplification efforts? ME TOO!
Get behind the Fair Tax movement.......the best thing since the Founding Fathers wrote Federalist Paper No. 21.....
No More Income Tax!
No More Corporate Income Tax!
No More Estate and Gift Taxation!
www.fairtax.org or www.pafairtax.org
I've done it both ways, by hand and by CPA. Last year I did it with TurboTax. Absolutely fabulous program. Highly recommend it. So F'ing easy. Electronic filing and all.
Full Disclosure: JASC. (Just a Satisfied Customer).
BUMP to inform us all!!!!!
This is a fantastic idea, state income tax has been included for years but it screws people in states with no income tax to deduct.
This also effectivly raises the income of people who can no use this deduction by leaving more mone in the CITIZENS pocket and out of the government's pork barrel coffers.
As long as you don't mind the fact that it's spyware.
Wife and I bought a car this year
WooHoo!
BTTT
>> As long as you don't mind the fact that it's spyware.
Not quite....
4/10/03 update to the above:
In response to the uproar about SafeCast, also known as C-Dilla, including allegations that it is also spyware and that it prevents CD burning, among other things, Intuit had an independent company, PCTest, evaluate SafeCast. Tom Allanson, senior vice president of Intuit's TurboTax division, told CNet News.com that in all its evaluations, PCTest "didn't find any appreciate deterioration in performance for any of the computer systems they tested." Copy and paste the website listed below into your browser, click on "removing C-Dilla from your computer" link for instructions for removing it once you have uninstalled TurboTax.
www1.turbotaxsupport.com/default.asp?platform=1&formname=&pd=&fs=&ver=&sku=&is=&oi=&docid=815
And it makes not one bit of difference whether it has any "appreciate deterioration in performance," even though there are differing opinions on the performance aspect.
It doesn't matter if it makes your PC faster, organizes your files or walks your dog.
What matters is that they inserted third-party software into TurboTax and decided not to tell anyone.
That's like your plumber coming in, fixing your leaky sink, which you'd be perfecly happy about, but installing a video camera in your shower without telling you. You'd be less happy about that.
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