IRS Tax Preparer Study Guide Detail About Deducting Sales Tax Is Often Applicable

Sawyer Adams
November 16, 2012 — 1,346 views  
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Completion of federal income tax preparation for individuals with itemized deductions creates a special condition with residents of certain states. Normally, a federal tax deduction is incurred for the amount of state income tax paid. However, people living in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming pay no state income tax. Consequently, a tax preparer training course teaches an alternative path to deduction of state taxes.

A deduction is allowed for either state income taxes paid or state sales taxes paid. Using sales tax instead of income tax benefits residents with low or zero state income tax rates. Fortunately, tax preparer software usually permits trying both income tax and sales tax options in order to determine which delivers the largest federal tax deduction. A key action is remembering to include local sales tax. This is charged on purchases in addition to a rate established by a state. Local sales tax rates typically vary throughout a state, thus creating tax preparer research work.

Few individuals maintain an actual record of sales tax paid throughout the year. Therefore, the IRS provides a standard table indicating the probable sales tax paid depending upon a taxpayer's gross income. This means that registered tax return preparer work to record all income must occur before using the tables. Tax software has the tables imbedded in the program for automatic calculations. Again, users must remember to add a local sales tax rate.

One possible solution for determining a sales tax deduction entails ignoring the standard table. This happens when taxpayers have a record of sales tax paid on some purchases that exceeds the amount on the tables. For example, a taxpayer who moves often has a record of purchases for furniture, window coverings, and related items. By using an RTRP worksheet, a tax preparer could establish that just a few receipts account for more sales tax than the entire amount from the standard table.

Even when the standard sales tax table is used to identify a taxpayer's income tax deduction, some other elements can impact the conclusion. Sales tax on certain "large ticket" items is added to the amounts from the standard table. As a result, every tax preparation checklist includes inquiries about sales tax paid upon buying automobiles, boats, recreational vehicles, airplanes, and home improvements. The sales tax for these purchases increases the standard table figure when identifying the federal tax deduction.

The law permitting deduction of state and local sales tax is a temporary measure that technically expired December 31, 2011. However, annual renewal has been the case since the federal deduction was introduced in 2004. Retroactive implementation of the deduction is expected for 2012 and beyond, making it a likely part of an IRS tax preparer study guide for years to come.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

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Sawyer Adams