10.18.04

Taxpayer Tips for the New State Sales Tax Deduction

• “Save your receipts, especially for big purchases.”

Starting now, keep all of your sales receipts, especially for big ticket items. Although you can still claim a deduction if you don't save your receipts, you may be entitled to a larger deduction if you do.

• “Check for any large purchases made since January 1, 2004”

Going back to 1/1/04, if you bought big ticket items, find the receipts and determine the amount of sales tax you paid on them. If you cannot easily find the receipts, you may wish to estimate the sales tax before looking further. Examples of big ticket items to look for receipts from: auto purchases, auto leases, boats, home remodeling, jewelry. If you did have large purchases, estimate the total sales tax you paid in 2004. That way you will be able to decide whether or not to use the standard sales tax deduction.

• “If you itemize on your federal tax return, choose the standard sales tax deduction or a deduction based on receipts”

Compare the amount of the actual sales tax you have paid to the amount that the IRS will automatically allow you to deduct. The IRS is in the process of developing a table that will take into account your income, marital status, and location in determining this amount. This table should be available by January, 2005. If you have records showing you actually paid more sales tax than the IRS table indicates, deduct that amount because your tax cut will be larger. Remember that you must have proof that you paid that amount of sales tax that you deduct in case you are audited by the IRS! If you only have receipts for a few big ticket items such as cars and boats, you can add these to the standard sales tax deduction supplied by the IRS!