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Income Tax 2005

Deducting sales tax? IRS has the details

The agency publishes tables to calculate savings through the newly available deduction.

By HELEN HUNTLEY
Published December 18, 2004

Want to know how much the new state sales tax deduction will save you? The IRS published tables Friday that will allow you to figure out the answer. But unless you're a math whiz, you might need a calculator.

The deduction, available on 2004 and 2005 federal income tax returns, was an election-year gift to the taxpayers of Florida and six other states that have no state income tax. Taxpayers who itemize deductions - about a quarter of those who file in Florida - can choose to deduct state income tax or sales tax.

Congress gave taxpayers the option of deducting sales taxes paid, but since it didn't pass the law until October, most people probably weren't saving receipts before then. The other choice is to deduct an amount based on the new sales tax tables plus sales tax paid on the purchase or lease of a motor vehicle.

The tables determine your deduction based on "available income" and the number of exemptions you claim on your tax return. "Available income" includes nontaxable income such as tax-exempt interest and the nontaxable portion of Social Security, pension and IRA distributions.

For example, a Florida family of four with $50,000 in available income gets a $918 deduction, according to the table. If the family lives in a county with an optional local sales tax, some calculating is required. For example, a 1 percent local tax would give the same family an extra $153 deduction.

Tax savings depend on a family's tax rate, which is based on taxable income after subtracting deductions and exemptions.

The tables are in IRS Publication 600, which is available on the IRS Web site at www.irs.gov/pub/irs-pdf/p600.pdf or can be ordered by calling toll-free 1-800-829-3676.

[Last modified January 19, 2005, 15:07:38]