Quit cheating yourself out of tax savings

The results are in. No, not the midterm election; we’re still waiting and will continue to do so for official word on a handful of races.

I’m talking about our "we want it back" tax deduction poll. This query got the most response of any previous Don’t Mess With Taxes survey. We’ve run 10 others in the past year, and only the question of how you file (computer vs. paper vs. accountant) sparked as much interest.

As you can see from the results there in the left column, an overwhelming 72 percent of respondents want the sales tax deduction back. The poll’s popularity and its winner, albeit in a very unscientific way since returning readers could vote once each day, underscore just how interested we are in ways to cut our tax bills.

Duh, Kay!

OK, just because you pretty much know the answer, that doesn’t diminish it or invalidate the asking of it. Scientific theory, you know. Prove your presumption. So I was not surprised by the actual poll winner.

What I am surprised about is that despite the apparent popularity of the sales tax deduction, some people just blew it off during the last two tax years it was available.

Filers say "no thanks" to tax break: In a recently released report, the
Treasury Inspector General for Tax Administration (TIGTA) found that residents of the seven states without a state income tax were six times more likely to ignore the sales tax deduction than filers living in the other 43 states and Washington, D.C.

The lucky seven locales with no state income levy are Alaska, Florida,
Nevada, South Dakota, Texas, Washington and Wyoming. The sales tax deduction is tailor made for these folks. (New Hampshire and Tennessee also are without a state income tax, but residents there must pay tax on dividend and interest income.)

However, some filers in these seven non-income-tax states didn’t claim the write off in each year (2004 and 2005) that it was available. In fact, instead of more folks getting it right as filing time goes on, the number of people who could have but didn’t claim the deduction increased.

On 2004 returns, 9 percent of eligible filers didn’t take the deduction. For 2005 filings, the non-claimant number grew to 14 percent. You can get the actual numbers and more details in the TIGTA report.

Who’s at fault? Treasury inspectors place much of the blame on the IRS, specifically the agency’s Web site:

One problem we identified was that the 2005 Sales Tax Calculator was not available on the IRS Internet web site (IRS.gov). The [tax year] 2005 instructions for Form 1040, Schedules A and B, informed taxpayers they could use the Calculator instead of completing the worksheet included in the instructions. However, the 2005 Sales Tax Calculator was not available during the 2006 Filing Season. As such, some taxpayers who prepared their own paper returns may have not claimed the deduction because the 2005 Sales Tax Calculator was unavailable and the worksheet in the instructions was very complex.

Fine. The IRS screwed up. Since filers were told by the IRS they could get help in figuring the sales tax deduction at the IRS Web site, that help should have been there.

But TIGTA should spread the blame a bit. Just because the online calculator wasn’t available, the affected filers shouldn’t be let off the hook.

We’re talking about your taxes people! If you know — and you knew; this tax break got lots of play in the general media — you can cut your IRS bill by taking a specific deduction, then it’s up to you to find out exactly how to claim it and do so.

Buy a book (you might be able to write it off), use tax software (ditto on the write off possibility), call the IRS 800 number and bug those folks for help. Do your homework before you do your taxes!

Plus, it wasn’t an impossible task. Yeah, taxes are confusing and intimidating, but as I noted a few paragraphs earlier, people in other parts of the country figured out the tax break. Maybe they are a bit more practiced in dealing with tax provisions since they do have state income taxes and all that entails. I know; I lived a long time in Maryland, with its state and piggyback county income taxes.

But all you Alaskans, Floridians, Nevadans, South Dakotans, Texans, Washingtonians and Wyoming residents are not idiots. Not all of you. Just because you don’t have to regularly file state tax paperwork doesn’t mean you can’t decipher a few extra lines on your federal form.

The sales tax deduction could have, and probably will again (more on this likelihood a little later in this blog entry), save you tax dollars. Claim it, even it takes a little bit of extra filing work.

And this time you won’t have any excuse.

When the sales tax deduction is reinserted in the tax code for the 2006 year (those returns due by April 16, 2007), the IRS promises it will have a working deduction calculator on its Web site.

So don’t leave your extra tax money in Uncle Sam’s pocket. Take the dang deduction!

Tallying the tax-break poll: As previously noted, almost three-quarters of the poll takers want the sales tax deduction back. The tuition and fees write-off was a distant second.

And poor teachers; they never get any respect. More people are unaffected by any of the three highlighted breaks than care whether the deduction for classroom supplies is resurrected.

Well, all of you (including me) who could benefit from one or more of these tax breaks on our upcoming 2006 returns, have faith. When the lame duck lawmakers return to Washington, D.C., in the next few days, approving these breaks is at the top of the agenda.

The White House has said it wants the issue resolved. A majority of Representatives and Senators on both sides of the aisle have pushed for continuation of these breaks for more than a year.

Now, with the midterm tally complete (for the most part; as a veteran of the 2000 election Florida debacle, I feel for you Virginians and the recount hell you’re likely to live in for the next few weeks), Capitol Hill can get back to a few months of real work before the 109th session closes.

Without a looming election to shape the pandering political process, legislation should actually move pretty quickly.