1. Beginning in 2004, a taxpayer who itemizes his deductions may deduct either of the following but not both:
   1. State income tax withheld and paid during the calendar year exactly as before or
   2. Sales tax paid. He can either
      1. Add up actual sales tax receipts paid during the year (not very likely) or
      2. Just use the tables in IRS Publication 600.

2. How to decide?
   1. Simple, compare the state income tax to the sales tax deduction.
   2. Deduct the one that is larger.
   3. Income tax programs such as those we use at Business Resources & Reports, Inc automatically compare and select the higher figure.

3. One complication: If the taxpayer buys a car, truck, or boat, he may add the amount of sales tax paid to the amount from the table.

4. How new is this deduction?
   1. The very same deduction with very similar tables was available to taxpayers up until the late 1980's or early 1990's. This long-cherished deduction was eliminated in the interest of simplifying the tax code and the complex Itemized Deductions.
   2. But at that time, both the state sales tax and the state income tax were deductible.
   3. It appears that in the majority of cases, the better deduction will be the income tax deduction just as before.
   4. The only exception might be if a person buys a new car. This year tax return preparers will have to add a new question to their interview.

Copyright © - 2004 Dutch Hawkins Mandeville, LA USA - All Rights Reserved

February 3, 2005