When filing your personal taxes, it may be unclear which taxes are deductible on Schedule A of your form 1040 and which are not. Here is a close look at which taxes you may include and which taxes you must not claim.
The taxes which you may absolutely not deduct are those paid as federal income tax, Medicare tax, social security tax, and federal unemployment taxes. There are additions to this list, but these are the major taxes you may not deduct. When it comes to these taxes, you must bite the bullet and accept the money you have paid as being for the improvement of society and not recoverable.
You may, however, choose to deduct either your state and local income taxes or your state and local sales taxes. This is particularly useful in states such as Texas that do not have a state income tax. When it comes to state and local income taxes, this amount is fairly simple to calculate as it is typically included on your W-2 form. However, the sales tax deduction may be a little more difficult as you have the choice to deduct the actual amount, which would require keeping up with records throughout the year on all sales tax paid, or you may utilize tax tables to estimate your deduction. The sales tax deduction has not been available for long; therefore, this is a deduction often missed. Be sure to consider it when calculating your tax liability.
Real estate or property taxes are also deductible if they meet certain criteria. One, the property must be used for personal use and not for business. Also, the tax must be based on the assessed value of the property and must be based in the uniform assessment of other properties in the area. The tax must also be used for the benefit of the community or for governmental purposes. If your real estate taxes are placed in an escrow account through your mortgage, you may only deduct the amount of taxes that were paid to the county or locality you are in and not how much you paid into the escrow account. This deduction is incredibly useful for many homeowners as property taxes usually prove to be a sizeable expense.
Another tax that is deductible is that on personal property, but only to the extent it is based on the property’s value. This is common with vehicle registration, in which a tax is charged for the amount your car is valued at. This tax is deductible. This is also true with boats, RV’s, and other personal property you are charged a tax based on the value of the property. Do not overlook these smaller times. Every bit helps when calculating your deductions.
Each of these tax deductions may be utilized to decrease your tax burden and minimize the amount of money you pay in.