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SALES TAX DEDUCTION UPDATE
March 12, 2005
The IRS issued new guidance (Notice 2005-31) on the optional sales tax deduction enacted last year. Taxpayers may now choose between deducting state and local income taxes or deducting sales taxes. This is a boon for taxpayers in states without an income tax.
The guidance addresses some technical issues in the law, including:
- Can you amend a return to switch from an income tax deduction to a sales tax deduction, or vice-versa? (Yes.)
- If you use the optional state sales tax charts to determine your sales tax deduction, how do you deal with local sales taxes? (You increase the amount from the chart proportionately with the local tax rate.)
- How do you use the charts if you move between states? (You prorate between the chart amounts based on the number of days in each state.)
- How married taxpayers filing separately compute their deduction under these rules.
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