There are costs you can deduct
By Herb Drill
There’s a bunch of things you can’t get away with, legitimately, when you try to cut your federal income-tax bill. Still, you may be able to deduct certain taxes on your income-tax return?
The Internal Revenue Service says you can if you file Form 1040 and itemize deductions on Schedule A. Deductions shave the amount of income subject to taxation, and there are four types of deductible non-business taxes:
· State, local, and local income taxes
· Real estate taxes
· Personal property taxes
· Foreign income taxes
This year, people can claim a state and local tax deduction for either income or sales taxes on their returns. You can deduct any estimated taxes paid to state or local governments and any 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 tables provided by the IRS to determine your deduction, 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 to the general sales tax rate.
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 tax authorities. Normally, your lender will send you a Form 1098 - Mortgage Interest Statement with this information at the end of the tax year.
Personal property taxes are deductible when they’re based on the value of personal property, such as a boat or car. To be deductible, the tax must be charged to you on a yearly basis, even if it is collected more than once a year or less than once a year. Generally, you can take either a deduction or a tax credit for foreign income taxes but not for taxes paid on income that is excluded for U.S. tax.
You can find more information on non-business deductions for taxes in Publication 17 - Your Federal Income Tax in Chapter 24 - Taxes. You may download Publication 17, or order it by calling toll-free 1-800-829-3676.
Here are helpful links:
· Schedules A&B - Itemized Deductions and Interest & Dividend Income (www.irs.gov/pub/irs-pdf/f1040sab.pdf).
· Publication 17 - Your Federal Income Tax (www.irs.gov/pub/irs-pdf/p17.pdf).