Monday, December 20, 2010

Sales Tax Deduction Reinstated in the Tax Law Passed Last Week

The big news of last week's tax law is that taxes are not going up January 1.  But there are other plot lines to the story, one of which is there are several tax deductions that previously expired at the end of 2009 that have now been extended for two years - 2010 and 2011.

This gives you some planning opportunities in the last few days of 2010 that weren't available a week ago.  One of these is the state and local sales tax deduction.  If you have been considering buying a "big ticket" item anyway, this might make it a little easier now.

Here are some of the choices you have with this deduction:
  • You can itemize deductions and include the sales tax you paid, if that is higher than the state income tax you paid.
  • If you live in a state that does not have sales tax, but charges fees based on the value of a vehicle purchased, you can claim those on the sales tax line as an itemized deduction.
  • If you don't itemize deductions, you can file Schedule L to get a larger standard deduction based on your purchase of a vehicle.
  • If you use the car for business you can include the sales tax and/or fees paid in the basis of the vehicle purchase price and depreciate it, including several possible provisions for accelerating much of the deductions into 2010.
There can be a big difference with each choice, especially if you factor in the possible effects on your state tax return and alternative minimum tax.  It is worth the time it takes to calculate it several ways to see which one is best for you.

Of Course, There Is Much More To Discuss

Come back often, I'll try to talk about it in plain English and give some planning ideas YOU can use!

Get Your Tax or Financial Questions Answered In A Future Blog Post 

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Important Note!   The information in this article is intended to inform you of some of the financial opportunities provided in the tax laws or elsewhere.  These laws are very complex and thus this article is not intended to give you specific advice for your personal situation.  If you need such advice, please contact a qualified professional.

© 2010, Doug Beecher, MBA, CPA all rights reserved. This article, either as a whole or in part, may not be reproduced or transmitted in any form without the prior written permission of the copyright holder. When such permission is granted, the user must state that the material was used by permission of the copyright holder.

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