Deductions aren't just for Sherlock!
Did you know that you may be able to deduct certain taxes on your federal income tax return? We're going to help make this so easy, Watson could figure it out on his own!
The IRS says you can if you file Form 1040 and itemize deductions on Schedule A.
Deductions decrease the amount of income subject to taxation. There are four types of deductible non-business taxes:
State and local income taxes, or general sales taxes; Real estate taxes; Personal property taxes; and Foreign income taxes.
You can deduct estimated taxes paid to state or local governments and prior year's state or local income tax as long as they were paid during the tax year. If deducting sales taxes instead, you may deduct actual expenses or use optional tables provided by the IRS to determine your deduction amount, relieving you of the need to save receipts. Sales taxes paid on motor vehicles and boats may be added to the table amount, but only up to the amount paid at the general sales tax rate. The Tax Cuts and Jobs Act (TCJA) limit the total amount of the above state and local taxes an individual can deduct in a calendar year to $10,000.
Taxpayers will check a box on Schedule A, Itemized Deductions, to indicate whether their deduction is for income or sales tax.
Deductible real estate taxes are usually any state, local, or foreign taxes on real property. If a portion of your monthly mortgage payment goes into an escrow account and your lender periodically pays your real estate taxes to local governments out of this account, you can deduct only the amount actually paid during the year to the taxing authorities. Your lender will normally send you a Form 1098, Mortgage Interest Statement, at the end of the tax year with this information.
To claim a deduction for personal property tax you paid, the tax must be based on value alone and imposed on a yearly basis. For example, the annual fee for the registration of your car would be a deductible tax, but only the portion of the fee that was based on the car's value. Call us or contact us today to find out how we can save you money! It's elementary!