Frequently Asked Questions About the New State Sales Tax Deduction
Q: Who is eligible for the tax cut?
A: Anyone who itemizes. Anyone can itemize, and therefore become eligible for the deduction. If taxpayers are intimidated about itemizing, they can call the IRS hotline for help: 1-800-829-1040 (that's 1-800-TAX-1040). However many people are better off taking the standard deduction, which, in 2004, was $4,850 for a single person and $9,700 for a married couple filing jointly.
Q: How will the tax cut work?
A: If you itemize, your state and local sales taxes will be deductible from your federal income tax return. You have two options to determine how much you can deduct: you can either use an IRS estimate of how much state and local sales taxes you paid, or you can use actual receipts.
Q: Do I need to save all of my sales tax receipts?
A: No. If you don't have your receipts, the IRS will estimate how much in sales taxes you paid. However, if you make large purchases you may be better off if you do save and itemize your receipts (see below).
Q: Why would I use a deduction table instead of actual sales receipts?
A: Unless you have made large purchases with high sales tax payments such as an automobile, home remodeling, jewelry, or a boat, it may be easier to use the IRS estimate instead of keeping all of your shopping receipts.
Q: How will the deduction tables work?
A: The law requires that the easy-to-use deduction tables be "based on the average consumption by taxpayers on a State-by-State basis…taking into account filing status, number of dependents, adjusted gross income, and rates of State and local general sales taxation." This means you can deduct estimates based on the IRS tables even if you don't save receipts all year.
Q: When will the tables be available?
A: The IRS is hopeful to have the necessary tables available by the end of December or early January at the latest.
Q: What are some examples of large purchases whose sales tax are deductible?
A: Cars, boats, jewelry, and home remodeling expense are all costly items with state and local sales taxes that are now deductible under the new law.
Also, if a person leased a car before 2004, but is still paying sales taxes on his or her lease payments, those sales taxes are deductible.
Q: What if I only have receipts for a few big ticket items?
A: You can add the sales tax paid on these items to the standard sales tax deduction found in the IRS-supplied tables.
Q: Can I deduct items like luxury tax or excise taxes on the sale of homes?
A: No, these taxes are not deductible under the new state sales tax deduction.
Q: How many Washingtonians will benefit?
A: About 970,000.
Q: What will the total benefit to Washingtonians be?
A: The Congressional Research Service estimates the total economic benefit to be somewhere between $488 million and $541 million. The Washington state Office of Revenue Forecast also estimates that it will create between 2,000 and 3,000 new jobs and more than $200 million in economic stimulus. Also fifty cents of economic activity will be created for every dollar in tax cuts.
Q: How much will the average tax cut for those who itemize be?
A: Between $519 and $575, according to the Congressional Research Service. Note: Click here to learn how to deduct our state sales tax on your federal return.
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