Updated Monday, Feb. 19, 2018
Presidents Day – OK, officially Washington's Birthday — is a federal holiday. Many state employees and private sector workers across the country also get a day off on this third Monday of February.
You know what that means. Folks are hitting the stores looking for Presidents Day sales bargains.
I hope your shopping spree is successful.
And if you are a big shopper, be it special holiday sales ties to federal holidays or any day because "Bargains!", then remember to use the taxes on your purchases as a way to reduce your federal IRS bill.
Sales or income tax deduction choice: Itemizing tax expenses and claiming state and local sales taxes on Schedule A used to be a no-brainer for folks who live in one of the five states without a general sales tax — Alaska, Delaware, Montana, New Hampshire and Oregon.
It also paid off for some folks who chose to deduct their sales taxes instead of state and local income tax because their state's income tax rate is low.
That's still a choice for filers next year on their 2018 returns. But the purchases you made this Presidents' Day or throughout the year might not be as worthwhile now thanks to the new tax laws that took effect on Jan. 1, 2018
The Tax Cuts and Jobs Act (TCJA) limits all the state and local taxes you pay — income or sales tax and real estate taxes on your home — to $10,000.
That means that some filers will find these itemized taxes of less value.
Also, many taxpayers this year will find it easier and a better choice to claim the TCJA's much larger standard deduction amounts.
And for your 2017 tax year return that's due by April 17, the old tax laws apply. There's no limit on state and local or property tax claims.
Regardless of the tax year and the laws in effect, your filing choices all come down to your individual tax situation.
If you plan to claim sales tax on either (or both) your 2017 or 2018 tax returns, here are some things to keep in mind.
Actual receipts or table amount: If you kept all of last year's sales receipts, you can total them for your basic deduction amount. I actually did this one year. Never again.
The other choice is to use the optional state sales tax table amount in the tables that the Internal Revenue Service has created for the 45 sales-tax-collecting states and the District of Columbia.
That year that I added up all my sales receipts, the amount that the IRS had figured was very close to my total. So I recommend going with the tax agency's numbers.
As the image of the Alabama sales tax deduction table at right (click for a larger view) shows, the amount you can deduct is based on your income.
The IRS' optional state sales tax tables are found on pages 14 through 17 of Form 1040 Schedule A instructions.
Check out page 18, too, if you live in Alaska, Arizona, Arkansas, Colorado, Georgia, Illinois, Louisiana, Mississippi, Missouri, New York, North Carolina, South Carolina, Tennessee, Utah or Virginia. The IRS has created additional sales tax tables for certain jurisdictions within these states' borders.
You also can complete the State and Local General Sales Tax Deduction Worksheet (page 5 in the Schedule A instructions or your tax software) or use the IRS' online Sales Tax Deduction Calculator.
Bigger deduction for major purchases: Also, don't forget that if you made a major purchase last year, you might be able to add that sales tax amount to your table amount or be sure to include in your total receipts sum.
This option is for what the IRS calls "specified items." These are:
- A motor vehicle, including a car, motorcycle, motor home, recreational vehicle, sport utility vehicle, truck, van and off-road vehicle;
- An aircraft or boat; and/or
- A home, including a mobile home or prefabricated residence, or a substantial addition to or major renovation of a home.
In all these specified item added sales tax situations, the tax levied must be the same as your state's general sales tax rate.
Yes, it's a bit more work, even if you use the optional sales tax tables and let your tax software or tax professional do all the work for you. But it could pay off in a lower tax bill.
You also might find these items of interest:
- Coloradans agree to a high tax to get high
- States still getting stiffed on sales taxes on Cyber Monday
- St. Louis Rams say they collected too much ticket sales tax
