Now that the 2017 tax filing season has arrived you may benefit from the following tax savings opportunity.
You are allowed to take an itemized deduction for state and local sales taxes instead of state and local income taxes. This provision was made “permanent” in late 2015. The deduction can be helpful if you reside in a state with no or low income taxes or if you’ve purchased major items, such as a car, boat, or home furnishings.
Your 2016 Tax Return
What determines whether you can save more by deducting sales tax on your 2016 return? Compare the amount you paid for state and local income tax to the amount paid for state and local sales tax. If you paid more in sales tax, then you would deduct the sales tax rather than the income tax. You can elect to deduct state and local sales tax in one year and state and local income taxes in another year.
Fortunately, you don’t need to have receipts documenting all the sales tax you paid during the year to fully benefit from the deduction. You can determine your deduction by using IRS sales tax tables that will base the deduction on your income and the sales tax rates in your area plus the tax you actually paid on major purchases (for which you will need to substantiate).
What Does The Future Hold?
If you’re thinking of making a large purchase in 2017, there’s always a possibility the sales tax deduction may not be available to take on your 2017 return. Although the deduction was made permanent, Congress could pass legislation to eliminate the sales tax deduction (or reduce its benefit) at any time.
Recent Republican tax reform proposals have included reduction or elimination of many itemized deductions, and the new President has proposed placing a cap on itemized deductions. Which proposals will actually be signed into law and go into effect is still uncertain.
If you have questions about the sales tax deduction or other tax strategies that can help you save taxes on your 2016 tax return, please contact us at 561-826-9303.