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2013 May Be Your Last Chance to Deduct Sales and Use Tax

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On December 22, 2017, The Tax Cuts and Jobs Act was signed into law. The information in this article predates the tax reform legislation and may not apply to tax returns starting in the 2018 tax year. You may wish to speak to your tax advisor about the latest tax law. This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.

2013 May Be Your Last Chance to Deduct Sales and Use Tax
Article Highlights
  • Taxpayers can choose to deduct sales tax or state income tax.

  • Sales tax deduction includes IRS table amount plus big-ticket items, or actual sales tax paid.

  • Primarily benefits taxpayers in states with no income tax.

  • Can also benefit taxpayers with low state income tax.

  • Generally will not benefit taxpayers subject to the alternative minimum tax.

  • Without congressional extension, the sales tax deduction expires after 2013.

  • Purchasing big-ticket items before year-end could increase tax deductions.
The 2013 tax year may be the last chance for taxpayers who itemize deductions to deduct state and local sales taxes. That is because the option to deduct state and local sales taxes in lieu of state and local income taxes expires after the year's end unless Congress extends it.

If you are considering the purchase of a big-ticket item on which you'll pay sales tax, you may want to make that purchase this year in order to achieve a higher itemized deduction for sales taxes.

Here is how it works: If you itemize your deductions you can choose to deduct state and local:
  1. General sales and use taxes, or
  2. Income taxes.
You will obviously want to deduct the higher of the two options. When determining the deduction for sales tax you may either:
  1. Deduct the actual amount of sales and use taxes you paid during the year, or
  2. Use the amount from the IRS-published tables based on your income, family size, and the sales and use tax rates in your locale. To the table amount you may add the actual amount of sales to the table amount and use tax for certain "big-ticket" items purchased during the year, such as motor vehicles, boats, aircraft, homes (including mobile and prefabricated homes), and home-building materials.
This provision primarily benefits taxpayers who live in states without an income tax where they have no state income tax to deduct. These states include Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.

However, you may still be able to benefit, even if you reside in a state that has an income tax. This is especially true if your state tax is low, or if you are benefiting from state tax credits that reduce your tax state tax and the sales tax option produces a larger deduction.

Taxes - either sales or state income tax - are not deductible at all when computing the alter-native minimum tax (AMT). So if you are subject to the AMT, the sales and use tax deduction strategy may be of no benefit to you.

As you can see, whether you will benefit from accelerating any big-ticket purchases before the end of the year will depend upon a number of circumstances. If you are unsure on the appropriate course of action, please call this office for assistance.




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