Tax Matters

Tax Matters

Telephone: 949.515.2862 | Fax: 310.857.6108

Deducting State Sales Tax in lieu of State Income Tax

Late last year, Congress passed a new law allowing taxpayers to deduct state sales tax in lieu of state income tax, provided they itemized their deductions.  Unless this law is extended, the deduction disappears after 2005.  Since this new deduction opportunity was enacted so late in the year, many taxpayers were not able to maximize their state sales tax deduction because they did not save their receipts.  Instead, they were allowed only to use the amounts found in the tables provided by the IRS.  Although you can add sales tax paid on certain items such as a new car, boat, RV, or home-building supplies to the table amount, saving all your receipts may result in a higher deduction.

 

The sales tax deduction is more advantageous for those living in states where there is no state income tax.  In the past, these taxpayers were completely left out of the deduction for state tax.  For most Californians, their California State Income Taxes paid will be a higher deduction than the sales tax deduction.  To receive the highest deduction, save those receipts and do the arithmetic.

Back to Categories