taxes

Some taxes can lower your IRS bill

Taxes » Tax Deductions » Some Taxes Can Lower Your IRS Bill

If you can't beat 'em, join 'em. That philosophy works well in tax season, when you can use some tax payments to lower your IRS bill.

By itemizing deductions, you can subtract many nonfederal taxes you pay from your federal income. The less income you have, the less you owe Uncle Sam.

State bills lower federal taxes

For folks who itemize, allowable deductions on 2013 returns include state and local income taxes or, for some filers, sales taxes paid throughout the year, along with real estate taxes, personal property taxes and intangible taxes on investments.

If you paid estimated taxes to your state revenue department, don't forget to add those amounts to the state income taxes that were withheld from your paychecks throughout the year.

And taxpayers in California, New Jersey, New York, Rhode Island and Washington may deduct mandatory payments made to those states' disability and compensation funds. Employee contributions to private or voluntary disability programs are not deductible.

Schedule A even offers itemizing taxpayers a catchall line (line 8) for "other" taxes. Here you can deduct occupational taxes or any foreign income taxes.

Foreign taxes are not that unusual, especially for investors whose holdings include mutual funds that invest -- and pay dividend taxes -- overseas. If that's the case, you'll find the foreign tax amount in box 6 of the Form 1099-DIV that your fund manager has sent you. This amount may be worth more tax savings to you, however, as a credit on line 47 of your Form 1040.

Keep an eye on Congress in 2014. The option to deduct state and local sales taxes instead of state and local income taxes expired on Dec. 31, 2013. That option won't be available for taxpayers in future tax-filing seasons unless Congress once again authorizes the deduction.

Don't go overboard

But don't get carried away in deducting taxes. There are some payments that Uncle Sam won't allow you to subtract from your federal income, including:

  • Federal excise taxes.
  • Social Security and Medicare, or FICA, taxes.
  • Federal unemployment, or FUTA, and railroad retirement, or RRTA, taxes.
  • Customs duties.
  • Federal estate and gift taxes.
  • State gasoline taxes.
  • Car registration and inspection fees.
  • Transfer, or stamp, taxes on the sale of property.
  • License fees, such as driver's, marriage or pet tags.
  • Assessments for sidewalks or other property improvements.
  • Parking and traffic tickets or other fines.
  • And if you paid any tax penalties or interest, sorry. These charges aren't deductible either.

 

advertisement

Show Bankrate's community sharing policy
          Connect with us
MORTGAGE HOME EQUITY AUTO CDs CREDIT CARDS
Product Rate Change Last week
30 year fixed 4.08%  0.16 4.24%
15 year fixed 3.19%  0.04 3.23%
5/1 ARM 3.36%  0.10 3.46%
 
View Rates in your area Next
Product Rate Change Last week
30K FICO-based HELOC 4.36% --0.00 4.36%
50K FICO-based HELOC 4.06% --0.00 4.06%
100K FICO-based HELOC 3.91% --0.00 3.91%
 
View Rates in your area Next
Product Rate Change Last week
60 month used car loan 2.79% --0.00 2.79%
48 month used car loan 2.98% --0.00 2.98%
60 month new car loan 3.23% --0.00 3.23%
 
View Rates in your area Next
Product Rate Change Last week
1 Year CD 0.94% --0.00 0.94%
2 Year CD 1.13% --0.00 1.13%
5 Year CD 1.76%  0.00 1.76%
 
View Rates in your area Next
Product Rate Change Last week
Balance Transfer Cards 15.77%  0.06 15.71%
Cash Back Cards 16.48%  0.07 16.41%
Low Interest Cards 10.96%  0.10 10.86%
 
Next
advertisement
DAILY TAX TIP NEWSLETTER

Get expert advice during tax season on tax preparation and tips for cutting your tax bill.

advertisement

Connect with us