The New Sales Tax
Deduction
Is this option right for you?
Late in 2004, Congress passed a new law
allowing taxpayers to deduct state sales tax in lieu of state income tax,
provided they itemize their deductions. Since this new deduction
opportunity was enacted so late in the year, many taxpayers were not able
to maximize their state sales tax deduction for 2004 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 for 2005.
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. It may also be more
advantageous for taxpayers in states with income taxes who make several
large purchases during the year that are subject to state sales tax (cars,
boats, airplanes, etc.).
Unless this law is extended, the
deduction is scheduled to disappear after 2005.
