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New sales tax deduction will save Floridians money

WASHINGTON -- Nov. 9, 2004 -- One more reason to buy a home in Florida: You may now deduct Florida sales taxes from federal income taxes in 2004 and 2005.

The recently-signed American Jobs Creation Act (AJCA) of 2004 resurrected a sales tax deduction last provided to taxpayers back in 1986. Prior to the Act's effective date, taxpayers generally could deduct only income, real estate and certain personal property taxes imposed by their state or locality as an itemized deduction on Schedule A.

This comes as good news to taxpayers, but especially those living in a state such as Florida that does not have a state income tax. Taxpayers living in other states may also deduct sales taxes from their federal forms, but they must choose between the sales tax deduction or a deduction for their local and state income taxes -- they cannot deduct both.

"This is a great opportunity for taxpayers that may result in a significant difference and improvement in their bottom line this tax season," says Mark Steber, CPA and vice president, tax resources for Jackson Hewitt Tax Service Inc. "In planning to make the most of this provision, taxpayers may want to schedule major purchases simultaneously to ensure itemized deductions exceed the standard deduction for a particular year. Depending on their tax bracket and other issues present in their tax return, taxpayers should also consider whether they should schedule their purchases for 2004 or 2005."

In all cases, taxpayers should consult their accountant before making any decisions that could impact their tax payments.

Florida taxpayers may deduct the actual amount of sales taxes paid or, if easier, deduct a standard amount as determined from a table currently being developed by the IRS. Additionally, the taxpayer may start with the table's standard deduction and increase the deduction amount by the level of sales tax paid on some big ticket items, such as a motor vehicle, boat or other large item soon to be defined by the IRS.

"Taxpayers, along with their tax preparer, need to evaluate which option will provide the greatest tax advantage," says Steber. "Those taxpayers choosing to deduct actual sales and use tax expenses will need to keep their receipts to support the amount of their deduction or opt to use the IRS standard amount table. In any event, always save the receipt for the large item purchases such as a car or boat."

According to Steber, the tax change could mean that it's better for some taxpayers to buy a big ticket item before the end of 2004 to maximize allowable deductions; but others planning major purchases in 2005 may want to wait to piggyback on the planned tax savings then. In all cases, an accountant will offer the best advice.

"As we head into the holiday season, when high-ticket item purchasing increases in many families, timing a purchase to a few weeks early or later might make a significant difference," Steber says. "This new provision just might spur some end of year spending to take advantage of this tax benefit on one's 2004 tax return."

© 2004 FLORIDA ASSOCIATION OF REALTORS