Did you know that you may be able to deduct certain taxes on your federal income tax return? Deductions decrease the amount of income subject to taxation. There are four types of deductible non-business taxes:
1. State, local and local income taxes
2. Real estate taxes
3. Personal property taxes
4. Foreign income taxes.
People will have a chance of claiming a state and local tax deduction for either income or sales taxes on their returns.
You can deduct any estimated taxes paid to state or local governments and any prior year's state or local income tax as long as they were paid during the tax year. If deducting sales taxes instead, you may deduct actual expenses or use optional tables provided by the IRS to determine your deduction amount, relieving you of the need to save receipts. Sales taxes paid on motor vehicles and boats may be added to the table amount, but only up to the mount paid to the general sales tax rate.
Taxpayers will check a box on Schedule A, Itemized Deductions, to indicate whether their deduction is for income or sales tax
Deductible real estate taxes are usually any state, local, or foreign taxes on real property. If a portion of your monthly mortgage payment goes into an escrow account and your lender periodically pays your real estate taxes to local governments out of this account, you can deduct only the amount actually paid during the year to the taxing authorities. Your lender will normally send you a Form 1098, Mortgage Interest Statement, at the end of the tax year with this information.
Personal property taxes are deductible when they are based on the value of personal property, such as a boat or car. To be deductible, the tax must be charged to you on a yearly basis, even if it is collected more than once a year or less than once a year.
Generally, you can take either a deduction or a tax credit for foreign income taxes but not for taxes paid on income that is excluded for U. S. tax.
Source: Internal Revenue Service
Click here for our Recommended Tax Companies
