Dunkin' Donut owners are always asking me how they can reduce their
personal income taxes. There is a two year gift from the government that
you should be aware of, and that most of you should be taking advantage
of.
One of the tax laws passed last October brought back the itemized
deduction for state and local sales taxes - but only for 2004 and 2005.
For these two years, you can choose to deduct on your federal income
tax return either state and local income taxes or state and local sales
taxes. The law came too late in 2004 for taxpayers to save sales tax
receipts, but you can use tables provided by the IRS to figure your
deductible amount. It's based on income, family size, and state of
residence. You can increase the table amount by general sales taxes
paid on certain big-ticket items, such as motor vehicles, planes, boats,
homes, or home-building materials.
This new deduction mainly provides tax relief for those who live in
states with sales taxes but no state income tax. However, many taxpayers
in other states might also benefit. The prudent thing to do is to save
sales tax receipts for 2005, particularly if you're planning to make
some large purchases. Then at filing time next year, you can take the
deduction (either income taxes or sales taxes) that gives you the lowest
federal income tax bill.
Note: The deduction isn't available to taxpayers who take the
standard deduction; nor is it allowed in calculating the alternative
minimum tax.
If you need more information, contact our office.
Return to 2005 Tax Tips
