600 Ericksen Avenue NE, Suite 300, Bainbridge Island, WA 98110

Telephone: (206) 842-8951 Fax: (206) 855-9483

Taxpayers Can Deduct Sales Tax from Their 2004 Federal Income Tax.

Thursday, October 14, 2004

By Alex Fryer
Seattle Times Washington bureau

No receipts? IRS will provide sales-tax tables

President Bush has yet to sign the corporate-tax bill that includes sales-tax relief for Washington state, and there are lots of details to fill in.

But one thing is clear: Starting next year, the American Jobs Creation Act will give taxpayers the ability to deduct sales tax from their 2004 federal income tax.

Here are answers to a few common questions:

Q: I haven't been saving receipts this year. Can I still deduct sales tax?

A: Yes. The Internal Revenue Service will provide tables that take into account filing status, number of dependents, adjusted gross income and rates of state and local general sales taxation. The sales-tax tables will be based on the average consumption by taxpayers on a state-by-state basis. The IRS will post the tables on its Web site: www.irs.gov

Q: How much are people expected to get back?

A: Congressional estimates say the typical Washington state taxpayer who benefits will be able to take about $500 off the federal income-tax bill.

Q: What if I bought something big such as a house or car? Can I get my sales tax back?

A: The law lets taxpayers add to the table amount the sales tax paid on "motor vehicles, boats, and other items specified by the [Treasury] secretary." More information is to come.

Q: Can you file any kind of tax return to get some sales tax back?

A: No. You must file an itemized return, using Schedule A, Itemized Deductions. Taxpayers who have a mortgage, medical expenses or lots of charitable contributions often file an itemized return. Some people pay less tax by filing a standard deduction. You must examine your finances to determine which tax form is the best for you.

Q: Does the sales tax apply to all income levels?

A: No. For tax year 2004, the deduction begins to phase out at certain income levels. The phaseout starts at an adjusted gross income of $142,700 for single filers, married taxpayers filing jointly and heads of household. For married taxpayers filing separately, the phaseout starts at $71,350.

Q: Can I include gasoline, movie tickets and other purchases that don't specify tax on the receipt?

A: You'll have to wait and see how the IRS handles this, but previously, before the 1986 Tax Reform Act ended sales-tax deductions, the receipt had to specify the amount of sales tax paid, apart from other taxes.

Copyright © 2004 The Seattle Times Company