Income vs State Tax

Physician's Money Digest, May 2005, Volume 12, Issue 8

Optional State Sales Tax


For the 2004 and 2005 tax years, anew tax law provision allows individualtaxpayers to deduct state and local salestaxes on their federal tax returns insteadof state income tax. This is great for taxpayerswho live in income tax-free states.Those who live in states with income taxcan benefit, too. To see if you can use asales tax deduction, first make sure youritemized deductions exceed the standarddeduction. Next, decide whether stateand local income taxes or state and localsales taxes are more beneficial to you byrunning the numbers; you can't chooseboth. Obtain your deduction numbersfrom sales receipts or the standardizedIRS estimated sales tax tables, included inPublication 600, , which can be downloaded ormailed upon request (800-829-3676; You can also add sales taxyou paid on vehicles, boats, and otherhigh-ticket items not yet specified by theIRS. Finally, determine whether you'resubject to the alternative minimum tax; ifso, you can't benefit from the new law.