June 1, 2007, Newsletter Issue #67: Sales & Other Tax Deductions

Tip of the Week

If you itemized your deductions on your 2006 tax return, you may deduct various tax payments you made throughout the year. Use Schedule A to report the following applicable tax payments:

State and local personal property taxes State and local real property taxes State, local, and foreign income taxesIn order to deduct any state and local personal property taxes paid, the IRS states you can deduct state and local personal property taxes/sales taxes paid in lieu of state and local income taxes paid.

For state and local real property taxes paid, it is important to note that you must have an ownership interest in the property on which the taxes apply. Having ownership interest in the property is the only way you can legally claim the tax deduction. For instance, if your spouse has title to the property (ownership interest), and you pay the state and local real property taxes for him or her, you cannot claim the deduction if you two file separate tax returns. If, however, you file your tax return jointly, you can claim the tax payment deduction.

Arriving at the total amount of taxes you paid regarding the state, local, and foreign income taxes is more complicated than the two taxes mentioned above. Payments you need to consider when arriving at this figure include:

Any amounts paid in 2006 when you filed your 2005 state and local tax returns Any estimated state and local taxes you paid in 2006 Any amounts of state and local tax withheld from your paycheck in 2006 Any prior year refund tax amount that was credited to your 2006 state and local tax returns.In general, business owners will deduct any state, local, and foreign taxes paid on Schedule C. They are considered a business expense.

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