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Adding up deductible sales taxes

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George SaenzDear Tax Talk,
What sales taxes (for states without income taxes) are actually included as deductible under the 2004-2005 tax change. For example, phone, cell phone and utility companies all charge tax on their bills, some of it going to our state. Motor fuel is also taxed by the state. Are these taxes deductible? Thanks.
-- Sally

Dear Sally,
After disappearing almost 20 years ago, a federal deduction for state and local sales taxes is resurrected for 2004 and 2005. An individual can choose between claiming their state income tax or state sales tax as an itemized deduction on Schedule A. Presumably, most folks will choose the larger of the two, and for those who don't have state income taxes, the sales tax is the obvious choice.

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In calculating your state sales tax deduction, you can use your actual general sales tax paid or the optional tables the IRS provides in Publication 600. The tables take into account income level and family size. Therefore the tables give the larger deductions to the higher earners or larger families. The taxes you actually paid, however, may be greater than the amounts shown on the tables, depending on your spending habits.

Your actual taxes would come from all the receipts you kept for the year, if you knew the law was going to change in November of 2004 and you kept all your receipts. Although I can't speak for all utility and cell phone bills in the country, if the amount is identified as sales tax and is at the same rate as sales tax charged in your area, then it would form part of the tax for the actual deduction. If the taxes were higher, then it is not a general sales tax and would not be deductible.

Also note that if you write off your cell phone for business, you would claim the sales tax as a business deduction and not as part of the itemized deduction for sales tax.

Sales tax on motor fuel would be deductible if separately stated and taxed at the same rate that applies to all taxable items in general. If higher, it is not a general sales tax.

In addition to the table amounts, you can also add the amount of sales tax you pay on the following motor vehicles.

  • cars
  • motorcycles
  • motor homes
  • recreational vehicles
  • sport utility vehicles
  • trucks
  • vans
  • off-road vehicles

You can also include any state and local general sales taxes paid for a leased motor vehicle, as well as sales tax paid on an aircraft, boat, home (including mobile and prefabricated) or home building materials if the tax rate was the same as the general sales tax rate.

-- Posted: Feb. 4, 2005
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