Why was the Sales tax deduction hidden from you in 2006? Read this and get it

By: Michael S Schmidt

In 2004, the internal revenue service added the option of deducting state and local sales tax on your 2004 and 2005 federal tax return. This was in place of taking the state income tax deduction. The enactment of this was helpful for people who reside in states that do not withhold state income taxes. In the beginning, this was only to affect 2004- 05 tax returns, however it was extended to the 2007-filing year.

Tax Law Extends State Sales Tax Deduction 2006

Late passage of the Tax Relief and Health Care Act of 2006 prevented the tax tables from being available in the 1040 tax instructions. Instead, the tables were made available on their website and six million copies were mailed out to filers across the country.

The IRS publication 600 will aid taxpayers in calculating the amount of their state sales tax so that they do not have to keep every receipt for the year. This will also be a major help to those who were unaware that the code was still in effect. The calculations are based on income and number of exemptions claimed on the federal return. The publication will also tell taxpayers how to add in any applicable local taxes as well.

What this means for filers who file a late 2006 tax return is there is a deduction they may not be aware of. If you will file a late return, you need to be aware of the extension of this tax deduction. When filing one of these prior year tax returns you can take this deduction on line five of schedule A and write in ST on the dotted line to the left of it.

Additional Local Deductions

In addition to the state sales tax deduction, taxpayers may also deduct local taxes paid on the following:

• Motor vehicle, limited only to the amount paid at the general tax sales tax rate

• Aircraft, boat, home, and in some cases extensive renovations. Again, as long as the rate is at the general sales tax level.

It is always a good idea to keep up with all the new and pertinent information governing your tax liability or deductions. Anyone filing 2006 taxes online should be aware that some programs might not be up to speed on last minute changes such as this.