Short-term Relief Can Cause Long-term Nightmares (Tax Withholding)

In today’s current economic climate, it is incredibly difficult to avoid financial hardship. There are numerous people in this country who are strapped for cash and struggling to make ends meet and their desperate, hasty decisions can prove to be extremely costly in the long run. When times are tough, finding a way to make a quick buck becomes commonplace. Some of the methods people use to secure extra funds that can have adverse long-term affects on their finances are adjusting tax withholding amounts through their employers, underpaying quarterly tax payments and securing short-term loans (I.E. title loans, checking account loans and paycheck advances.) Most people are aware of the dangers of short-term loans, considering they have extremely high interest rates and little flexibility in regards to paying them off; however, far fewer seem to recognize the dangers involved with adjusting tax withholding amounts and/or underpaying quarterly tax payments. These two particular options bring short-term relief, but can leave an individual in a far worse situation in the long run, particularly with regard to tax debt. Let’s look at the first of these two options, the dangers involved with it and the appropriate way to handle it, if you determine that it is absolutely necessary.

The first of the two options mentioned above is adjusting tax-withholding amounts. The easiest way to understand this is as follows; the higher number of dependants you claim on your W-4, (which is the withholding form you complete and submit to your employer each year,) the lower the amount of taxes that will be withheld from your paycheck each pay period. In the short-term, you will see a financial gain, because your paychecks will be larger each pay period. In the long-term; however, this can become a major problem. When it comes time to file your yearly tax return, the less you have paid in taxes for the year, the more likely you are, to owe a balance to the IRS, or state Department of Revenue. If you have not prepared for a tax liability and are unable to resolve this in the timeframe allotted by the taxing entity, you may be subject to penalties, interest, levies, liens and other consequences. Your financial situation may become far worse then it was when you adjusted your withholding amount in the first place. With these consequences in mind, there is a very simple way to avoid any long-term disasters when it comes to tax withholding. The IRS and/or each state Department of Revenue can provide you with information that will guide you in determining what your withholding amount should be. The information they supply tells you exactly what you can withhold, based on your income, to ensure that you will not owe any taxes at the end of the year. You can use this information to adjust your taxes, so you are not underpaying. This information can also be helpful, because if you are financially burdened and need immediate cash flow, you can withhold an amount that will make your tax refund lower in the following year, but will not put you in danger of owing a balance.

Managing your tax withholding can become a beneficial financial asset, if handled properly, but a nightmare if taken advantage of. Keep that in mind, the next time you consider your options for short-term financial relief. Always remember that there is no easy way to make fast cash and if it seems easy, you better be aware of the consequences before you proceed.

Posted by JK Harris

More Americans cheat on taxes

As I have mentioned in previous writings, audits are expected to increase as the Obama administration is increasing its funding to enforcement activities. The following article from CNN Money offers information on tax cheats. While most Americans list a tax audit as one of their greatest fears, there are apparently still some taxpayers who feel they can get away with cheating on their income taxes without getting caught. With last year’s dramatic increase in audits, it is expected that the number of audits this year will be even higher – and an audit is what is going to trap those who are cheating on their taxes.

Do you cheat on your taxes? If so, you’re not alone. More Americans are fudging their taxes and an increasing number of people are scared of being audited, a survey from the IRS Oversight Board shows.

Thirteen percent of those surveyed said cheating is acceptable, according to an annual poll conducted for the Internal Revenue Service Oversight Board. That’s up 4% from 2008. Four percent of Americans said they cheat on their taxes “as much as possible,” up 1% from the year before.

As tax season approaches this year, even more people may resort to cheating.

“I think the temptation will be greater this year, given the overall economic environment,” said Bob Kerr, senior director of government relations at the National Association of Enrolled Agents.

But it’s still impressive that more than 80% of those surveyed said they don’t think it’s ever acceptable to cheat, said Kerr.

How people cheat: As the government offers more refundable credits to taxpayers, such as the Making Work Pay Tax Credit, people may be tempted to try to claim more money than they deserve.

“We’re getting more refundable credits,” said Mark Luscombe, a tax analyst at CCH. “Historically, when you’re able to get a check from the government in your hands right away, this has brought more cheaters out of the woodwork.”

Besides common cheating tactics such as inflating the value of charitable donations and claiming personal expenses as business expenses if you’re self-employed, Luscombe said a number of “cheaters” are simply those people who can’t decipher the complicated tax code.

“People can’t figure it out so they just put down a number that seems pretty good to them,” he said. “The laws get more and more complicated each year and people just have less time to figure out the right way to do it so they might try to cut some corners.”

Scared of getting audited: When asked if the fear of an audit plays a role in whether or not a taxpayer reports his or her taxes “honestly,” 77% of Americans said yes, according to the poll.

That shouldn’t be a surprise given the higher likelihood that you will be selected for a review. Last year, the number of audits rose to the highest level in a decade, and even more audits are expected this year as the Obama Administration pours money into tax enforcement.

A hotline was created to prevent cheaters from slipping past the IRS. Anyone with information about suspected tax fraud is encouraged to report it to the agency’s tip line at 1-800-829-0433.

“There’s still only about a 1% chance on average that you will be audited,” said Luscombe. “But the audit rate has headed back up in the last couple years so your chances are certainly going up.”

Posted by JK Harris

The Top 10 Most Overlooked Deductions

Like most taxpayers, when filing your tax return you want to get the largest return amount possible. Most of us believe we are so thorough and that we are detecting every deduction possible that we qualify for. The truth is, many of us are missing out on several tax deductions. Below, you will learn about the ten most over looked tax deductions taxpayers commonly miss out on when they file taxes at tax time. Read carefully about these deductions because chances are – you may be eligible and missing out on some of these deductions yourself.

1. Charitable contributions paid out of your pocket: This may include ingredients that you purchased out of your own pocket in order to feed the needy or if you traveled somewhere to volunteer for a disaster relief situation.

2. Child Care Credit: If you receive child care assistance through your place of employment this credit is easy to miss. You can receive up to five thousand dollars for child care that is reimbursed through your place of employment. Other child care programs can qualify for up to six thousand dollars in tax credit if your child care is not in a place of employment reimbursement program.

3. Refinancing: If you have recently refinanced your home, you are most likely eligible to receive refinancing points. This deduction does require you to deduct the refinancing points over the entire life span of the loan. For instance, if you are financed for a twenty year loan then that means it is twenty dollars per year for each one thousand dollars that you have paid.

4. Military Reserve Travel Costs: If you happen to be a member of the military reserve program or a member of the National Guard, you may be eligible to receive a deduction for traveling expenses. This can be used when you are required to travel to drills, other meetings or events. The requirements just state that you must travel more than one hundred miles in order to be eligible for this deduction and you must be at the destination over night.

5. Moving to a new job: If you were required to move fifty miles or more in order to take a new job then you may be eligible for this deduction. If eligible, you can deduct the amount it cost to relocate and travel to the new destination. This also includes a cents-per- mile traveled amount. You may also deduct the amount of parking fees or other tolls.

6. Student Loans: If you are a parent and you paid the interest on your child’s student loans you could also receive a tax deduction. The IRS views this as giving money to the dependent and the dependent pays on the loan. A child who isn’t claimed can qualify to deduct up to twenty five hundred dollars.

7. College Tuition: If you helped pay tuition for yourself, spouse, or dependent you could be eligible to deduct up to four thousand dollars.

8. Educators’ Expenses: If you are a teacher you may be eligible to deduct up to $250 dollars if you spent your own money in order to purchase classroom supplies or books.

9. State Implemented Sales Tax: To receive this deduction, you must choose either a deduction of state income tax or state sales tax.

10. Jury Duty: If you were summoned to jury duty and your place of employment paid you for that day, but required you to hand over your jury duty compensation to the company you may be eligible for this deduction.

If you exam your tax returns carefully, you may find you have missed a deduction, or maybe a few. If you qualify for any of these tax deductions, make sure you take them.

Posted by JK Harris

Get a Tax Refund from Business Losses

One of the interesting outcomes of the government’s stimulus act is the maneuver known as “loss carryback”, which allows taxpayers to “carryback” losses to prior, more profitable years. This way, taxpayers can actually get refunds from previous returns in those years. Read this CNN Money article.

NEW YORK (CNNMoney.com) — Sick of sending big checks to the IRS? For some business owners, this tax season will bring a rare reversal: A stimulus-fueled tax change is putting cash back into the pockets of qualifying entrepreneurs.

Bill Hewitt, who owns several real estate ventures in Denver, recently collected a $150,000 refund check from the IRS thanks to the new tax rules. “Without that money, I probably would have gone under,” he says. “When you can’t get any loans from anybody, it kept me alive.”

Hewitt took advantage of a tax maneuver called “loss carryback.” When a business books a profit, it pays income tax on its earnings. But if the business then turns a loss in later years, tax rules allow the business to “carry back” its loss and deduct the money from earlier profits. By filing an amended tax return for the earlier, profitable year, the business can claim an immediate refund on the taxes it paid.

IRS rules usually let companies carry back a loss into the prior two years. That means a business with a loss in 2009 could go back and amend its 2007 taxes, but any profits from 2006 or 2005 would be untouchable.

But last year’s Recovery Act extended the window for small companies, allowing businesses with average annual sales of $15 million or less — like Hewitt’s — to carry their 2008 losses back five years. In November, Congress expanded the tax break even further, allowing businesses of all sizes to carry their 2008 and 2009 losses back for five years.

How it works: Loss carryback rules bring the biggest benefit to companies that were once profitable but suffered a sudden revenue plunge. That’s because businesses can only get back money they’ve already paid to the government in taxes. If you never had any taxed profits, there’s nothing to reclaim.

But for companies suddenly whacked by the recession, the tax break can be a lifesaver.

“The only company that could benefit from this is one that has been profitable and is currently having difficulty — and that is the kind of company that you want to help,” says said Tom Ochsenschlager, vice president of taxation at the American Institute of Certified Public Accountants. “The government is paying cash. You will get a check from the government. That is going to help a lot in these tough times.”

Businesses also have the option of carrying losses forward for up to 20 years, to offset future profits when their sales pick up. But for companies that need cash right now, that’s cold comfort.

“Some of these businesses wouldn’t be around 20 years from now to take advantage of the carry forward,” Ochsenschlager says. “Whether they survive or not might depend on whether they get the refund back.”

Bill Hewitt’s accountant, Scott O’Sullivan of Margolin, Winer & Evens, says the new carryback rules were critical to getting his client an immediate cash infusion.

“He had to pay taxes more than two years ago, so we were able to take advantage of this law change to free up taxes paid in the past,” O’Sullivan says.

Hewitt, whose staff of 50 has shrunk to 30 as the recession ravaged the real-estate market, used the cash to pay bills and salaries. Like many business owners right now, he can’t find financing for his struggling company: “Banks will ask you to fill out papers and run you around, but they are not lending,” he says. “All the lines of credit have dried up.”

Without the IRS refund, Hewitt’s firm would have been forced to unload assets — commercial and residential buildings, in his case — at fire-sale prices to free up cash. The refund gives him enough of a cushion to wait the market out a bit longer.

It’s been a life preserver for many businesses. “My general impression, talking to practitioners at tax conferences, is that this is a very popular provision and has been widely used,” says Mark Luscombe, principal analyst for tax services firm CCH.

The carryback provision is available to both corporations and “pass-through” businesses, which are companies organized as a partnership, sole proprietorship or S corporation. Those entities don’t file corporate taxes. Instead, the business’ profits and losses are distributed directly to the owners, who then pay taxes on it as personal income.

C corporations — those that pay corporate income taxes — will benefit the most, says Eric Toder, a fellow at the Urban Institute and Urban-Brookings Tax Policy Center.

“A flow-through business does not pay any tax; it allocates its profits or losses to its owners,” Toder says. “Only if their loss from the business exceeds all their other income would they have to make use of the carryback.”

What it costs: When Congress was drafting last year’s Recovery Act, it considered making all businesses eligible for the extended loss carryback rules. But legislators balked at the price tag, and the final version of the stimulus bill only made the provision available to small companies, which cut its estimated cost down to $947 million.

In November, though, Congress reversed its stand and extended the break to all companies with 2008 or 2009 losses.

That’s lead to some giant refunds for big businesses — troubled homebuilder Lennar recently booked a $353 million tax gain from the provision — and a much bigger hit to the nation’s coffers. The Joint Committee on Taxation estimates the carryback change will cost the government $33.2 billion this year, though the 10-year cost of the break is smaller, because companies won’t be carrying 2009 losses forward to reduce their future tax bills. The committee’s estimate of the 10-year cost is $10.4 billion.

Whatever its price tag, accountants say the change is stopgap, not a solution, for struggling small businesses.

“It is not a bad thing, I just don’t think it goes to a big enough part of the population, because you have to be in a position where you were earning substantial amounts and paying substantial amounts of taxes and then having an exceptionally bad year where you lost a lot of money,” says Robert Moses, a retired CPA who continues working with small companies as SCORE volunteer.

“It is a nice thing, but it only goes so far,” agrees O’Sullivan, Bill Hewitt’s accountant. “Eventually that source of cash will dry up and you will have to start generating your own revenue.”

Posted by JK Harris

Six things you should do to avoid IRS tax debt

Of all the types of debt Americans can get themselves into, tax debt is the worst. The IRS has steep penalties and interest rates, which can quickly escalate a tax debt into a large and often times, overwhelming liability. The best thing you can do to avoid having to seek out JK Harris or another tax professional to assist you, is to follow these six steps to avoid accruing tax debt, interest and penalties.

1. Adjust your withholdings – One of the most common mistakes taxpayers make is not ensuring the right amount of taxes is being withheld from their paycheck. Withholdings can be changed at any time of the year and typically it takes less than five minutes to do. Not sure what you should have withheld? The IRS offers a withholding calculator (link: http://www.irs.gov/individuals/article/0,,id=96196,00.html?portlet=4) on their website to help you determine how much you should be withholding.
2. Claim only what you are entitled to – Don’t get greedy and try to claim credits or deductions you are not entitled to. If you are not sure, check out www.irs.gov for information on any credits or deductions you think you may qualify for, or see a tax professional for assistance.
3. Make your estimated tax payments – This is one of the most common reasons we see clients who come to us with tax debt.. Many self-employed folks fail to make their estimated tax payments on a timely basis and this can quickly escalate into a cycle of late payments, interest and penalties. The IRS has taken notice of this and has shifted the focus of audits to small business owners. Don’t add an audit to your list of tax woes!
4. Pay tax debt as soon as possible – If at any time you are unable to pay your tax debt in full, act quickly to set up an Installment Agreement. This will allow you to pay back the debt in affordable monthly payments. You can do this yourself, or hire a tax representation firm to assist you.
5. If you are not confident, seek professional help – If you are not completely confident your tax return is accurate, seek a tax professional to check it over. Not only can they assist you in making sure you don’t claim any credits or deductions you aren’t entitled to, they might be able to find errors which result in a lower tax liability or even a refund.
6. File your return on time, even if you cannot pay – It is always much better to file a return and pay later (preferably through an Installment Agreement as mentioned above) than to face the failure to file and failure to pay penalties. If you do not file a return, the IRS will file a Substitute For Return on your behalf. This often results in you being assessed thousands of dollars more than you actually owe because the IRS does not take into consideration any exemptions and it files you as single. While this is correctable, it is time consuming and can be very frustrating.

Remember that it is always better to avoid tax problems from the start. If you find yourself facing a tax debt you don’t know how to handle, call JK Harris. We can show you what options you have to resolve your tax problems.

Four Steps to Follow If You Are Missing a W-2

This IRS release will help you if you find yourself missing your ever-important W2 for tax season.

Getting ready to file your tax return? Make sure you have all your documents before you start. You should receive a Form W-2, Wage and Tax Statement from each of your employers. Employers have until February 1, 2010 to send you a 2009 Form W-2 earnings statement. If you haven’t received your W-2, follow these four steps:

1. Contact your employer If you have not received your W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.

2. Contact the IRS If you do not receive your W-2 by February 16th, contact the IRS for assistance at 800-829-1040. When you call, you must provide your name, address, city and state, including zip code, Social Security number, phone number and have the following information:

* Employer’s name, address, city and state, including zip code and phone number
* Dates of employment
* An estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2009. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.

3. File your return You still must file your tax return or request an extension to file by April 15, even if you do not receive your Form W-2. If you have not received your Form W-2 by April 15th, and have completed steps 1 and 2, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. There may be a delay in any refund due while the information is verified.

4. File a Form 1040X On occasion, you may receive your missing W-2 after you filed your return using Form 4852, and the information may be different from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.

Form 4852, Form 1040X, and instructions are available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Posted by JK Harris

Choose your tax preparer wisely

In a recent press release issued by the IRS, a Certified Public Accountant (CPA) was recently suspended from practicing before the IRS for 12 months. The Office of Professional Responsibility found the practitioner had provided false and misleading information in connection with the preparation of some of his client’s returns.

Robert A. Loeser, a CPA from Houston, Texas claimed false business expenses on his client’s returns in an effort to help inflate their tax refunds or to help lower their tax bills. In an elaborate scheme, the clients were forwarding funds from their businesses to two corporations Loeser controlled. The corporations then refunded money to the clients. The scheme made it appear the payments to Loeser’s corporations were normal business expenses, which they were not.

This scenario is just another example of “if it sounds too good to be true, it probably is.” Choosing a tax preparer you can trust is an important decision you must make for your own peace of mind. You need someone honest and trustworthy who has your best interests at heart. If a preparer tells you he or she can get you a larger refund than anyone else can, that should immediately raise a red flag in your mind.

You are ultimately responsible for your tax return as the taxpayer signing the 1040 and that is why it is important to have a knowledgeable tax preparer you trust.

The most important things to remember are to ask questions about their level of experience or ask if they have any credentials. Certified Public Accountants (CPAs) and Enrolled Agents (EAs) are required to take ongoing tax education credits. You might also ask friends or family who they use to prepare their income tax returns.

Check to see how long a preparer has been in their current location. Longevity at a location shows the preparer will be there for you if something should arise on your return and you need their assistance. You want to be comfortable in the knowledge they will be there for you, in the event you should ever need them.

Most importantly, avoid any tax preparer who bases the fee they charge on a percentage of the refund they are getting you. This and the promise of a large refund itself are two things that should raise red flags in your mind.

The IRS does not currently require any licensing or training for tax preparers. This will change next year, when preparers will be required to register with the government, pass a competency test and take continuing course to keep up on changing tax laws.

Save on your 2009 income taxes – use Publication 17

Tax season is here, as you probably already know by the arrival of W-2s or 1099s at your home or office. It is that time of year to gather all of your documents and prepare for filing your state and/or federal returns. While many of you may be dreading this annual event, there have been some recent changes, which might improve your outlook for your tax return this year.

Make sure you take advantage of the new recovery tax breaks made available in the American Recovery and Reinvestment Act of 2009. The IRS recently revised Publication 17, Your Federal Income Tax, which details some of the new tax saving opportunities. All taxpayers should look into: the Making Work Pay credit, the American Opportunity credit for parents and college students, energy credits available to certain homeowners who “went green” last year, the First Time Homebuyer Credit, sales or excise tax deduction for new car buyers and the expanded child tax credit and Earned Income Tax Credit for low and moderate income workers. Although the First Time Homebuyer credit was well publicized, there are other credits and deductions available you might not be aware of.

The IRS recently listed these five facts about Publication 17 and how it will help you prepare your income taxes:

1. The online version of Publication 17 contains electronic links that make finding your answer simple. Both the downloadable PDF and online 2009 Publication 17 have more than 6,000 hyperlinks.

2. Publication 17 features details on recent tax law changes and legislation that can help you save money at tax time. You’ll find lots of helpful information about the American Recovery and Reinvestment Act of 2009, including the Making Work Pay Credit and the First-time Homebuyer Credit.

3. This publication is packed with basic tax-filing information and tips on what income to report and how to report it. Publication 17 also includes information on figuring capital gains and losses, claiming dependents, choosing the standard deduction versus itemizing deductions, and using IRAs to save for retirement.

4. Publication 17 is also available in Spanish.

5. You can get a hard copy of Publication 17 for free. To get a copy, check out IRS Publication 17 at www.irs.gov/publications/p17/index or call 800-TAX-FORM (800-829-3676).

Posted by JK Harris

Obama’s new budget: How does it affect taxes?

Many Americans are asking whether their taxes will be impacted by the new budget set forth by the Obama administration. This article by CNN Money goes over the groups and individuals who will see their tax rates go up or down.

NEW YORK (CNNMoney.com) — President Obama, in his proposed 2011 budget, is calling on Congress to make a number of tax changes for individuals.

Some ideas are new. Many others were made last year, but not enacted by Congress. So the estimates of the revenue that may be raised by his proposals may be overly optimistic.

Across the universe of individual and corporate taxes, “what’s most striking is how little new ground [the president's budget] ploughs,” said Clint Stretch, managing principal of tax policy at Deloitte Tax LLC.

Here’s a breakdown of some of Obama’s key proposals for 2011 and beyond that would affect individuals:

High-income households

Let tax cuts expire: The 2001 and 2003 Bush tax cuts are scheduled to expire by 2011. Obama is sticking to his call to let those tax cuts expire for high-income households ($200,000 for individuals; $250,000 for families). The White House estimates close to $700 billion would be raised over 10 years.

This provision would raise the top two individual income tax rates to where they were in 2001, before passage of the Bush tax cuts. The 33% bracket would become 36%. And the 35% bracket would rise to 39.6%.

In addition, the long-term capital gains tax rate would increase to 20%, up from 15% currently.

The provision would also reinstate so-called phaseouts for high-income households, which would essentially reduce their eligibility for a host of personal exemptions.

The House may be amenable to letting the tax cuts expire in 2011 for wealthier Americans. But Stretch said it may be a tougher vote in the Senate, where there may be more of an inclination to wait until 2012 when the economy is expected to be on firmer footing.

Limit itemized deductions: The president proposes to cap at 28% the rate at which high-income households can itemize their deductions. Currently the value of a deduction is equal to the deductible amount multipled by one’s top income tax rate, which can range well above 28%. So deductions will be worth less to a high-income tax filer under the president’s proposal.

Capping itemized deductions is a proposal he made last year and it went nowhere. That’s in part because many in Congress said it would seriously curb charitable giving, even though that is not a foregone conclusion. If the measure gains any traction this year, it’s likely Congress would limit the cap to only certain types of deductions, thereby muting its revenue-raising effect.

The White House estimates that capping the rate on deductions could raise $291 billion over 10 years.

Click here to go to the article for the remaining groups impacted.

Posted by JK Harris & Company

Late tax payment may be deductible

This Q&A session by Karin Price Mueller at the Star Ledger analyzes when tax deductions can be made, even for payments on back taxes to the IRS.

Q. In 2009, I discovered that I had underpaid my state income tax that was due in 2008. Upon that discovery, I made the appropriate payment. Can I deduct the payment that I made to the state in 2009 for that 2008 underpayment from my federal income tax for the 2009 tax year?

— SR

A. Maybe the additional deduction will help make up for the penalties and interest you probably owed for the late payment. Yes, you can take the deduction.

All individual taxpayers are on the “cash basis” of accounting, said Gail Rosen, a Martinsville-based certified public accountant. This means that a taxpayer deducts taxes paid in the year that they pay them.

‘‘It does not matter what year it relates to,’’ Rosen said. ‘‘What controls it is the date the check is paid.’’

Rosen said you can only take the deduction on your federal return for the amounts paid for the actual tax bill owed. You can’t deduct any interest or penalties you had to pay.

Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown, explains the “date on the check” issue further. He said, for example, if you pay estimated taxes, your 2009 fourth-quarter estimated state tax payment was due Jan. 15, 2010. Paying on Jan. 15 was exactly on time, but because the payment was made in 2010, you can’t take it as an itemized deduction on your 2009 federal income tax return.

Don’t forget to keep the Alternative Minimum Tax (AMT) in mind, Rosen said. State taxes are an “addback” for AMT, so if you fall into AMT, Rosen said any additional state taxes you pay will not lower your federal tax bill.

‘‘Don’t rule out the deduction. Include it in your calculations to see if it is a benefit,’’ she said.

While you can take the deduction, Kiely said, you may need to make a choice. You can deduct state and local taxes as an itemized deduction, or you can elect to deduct sales taxes paid, but not both.

To learn more about the deductibility of state tax payments on your federal return, read IRS Publication 17 (2009) Your Federal Income Tax, at irs.gov. Also check out the IRS’ Sales Tax Deduction Calculator at (apps.irs.gov/app/stdc).

Posted by JK Harris