posted
Thanks to the American Jobs Creation Bill, you will be able to either deduct state income tax or state sales tax in 2004 and 2005. Since I live in Florida where there is no income tax, I'll be getting a new deduction this year.
My question concerns the new home we just bought. Someone told my wife that the cost of a new home is deductible. They said that even though no sales tax is shown on the price of the home, it's still there in all the material, etc. that went in to it.
Anyone know anything about this? I would guess that if it is true, it would only apply to the amount actually spent in 2004 - our down payment and possibly any principal we've paid.
Posts: 4625 | Registered: Jul 2002
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quote:Sales tax: As has been widely reported, you will be able to choose between deducting your state/local income tax and your state/local sales tax. Most taxpayers will continue to find that writing off the income tax is more beneficial -- especially in high-tax jurisdictions like the District -- but special circumstances, such the purchase of a car or boat, can change that. You can use state-by-state IRS tables to figure your sales-tax deduction, but you can also use actual receipts. In fact, sales taxes paid on motor vehicles and boats may be added to the table amount, but only up to the general sales tax rate. (The tax rate on these items may be higher.) So if you had an outsized purchase last year, you may want to hunt up the sales ticket.
posted
zan, I'm a small time tax preparer, but the rationale behind deducting the cost of the home sounds questionable to me. You would need to do further research.
And Caveat Emptor on tax preparers, people! My in-laws put their fate in the hands of this guy who is too lazy to computer their home office expense, and they didn't even know about it. I pointed it out to them and they just shrugged and said "he must have had some reason for doing it that way."
Posts: 2010 | Registered: Apr 2003
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posted
This is from IRS Publication 600. This is for specific items not covered in the tables provided for estimating the yearly amount spent on sales tax.
A motor vehicle (including a car, motorcycle, motor home, recreational vehicle, SUV, truck, van, and off-road vehicle). Also include any state and local sales tax paid for a leased motor vehicle. If the sales tax rate on these items is higher than the general sales tax rate, only include the amount of tax you would have paid at the general sales tax rate.
An aircraft, boat, home (including mobile and prefabricated), or home building materials, if the tax rate was the same as the general sales tax rate.
posted
If it's deductible, that's great. I was just leary of the rationale behind it. I don't know if contractors even pay sales tax on homebuilding supplies.
Posts: 2010 | Registered: Apr 2003
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posted
The way it was described to my wife was that builders do pay sales tax on supplies and then pass it on to the buyer.
I'm trying not to get too excited yet, though. This seems to fit under the "too good to be true" category.
Posts: 4625 | Registered: Jul 2002
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posted
And in return, the government provides valuable services like, um, not letting rebel factions kill too many people every morning?
Posts: 37449 | Registered: May 1999
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posted
But zan, who do you pass your sales taxes on to? And who gets reimbursed for that? That's why I found the rationale puzzling. The reason this is an aspect of a jobs creation measure is just to encourage more people to buy stuff generally. New stuff instead of getting something used off of eBay.
Posts: 2010 | Registered: Apr 2003
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quote:My in-laws put their fate in the hands of this guy who is too lazy to computer their home office expense, and they didn't even know about it.
My sister-in-law, a CPA who specializes in small business tax preparation, has always encouraged us NOT to deduct home office expenses. IN her words, it's an audit flag. And, since most people do not have a clear separation on what they use their home office for, it can get very dicey. For example, does the internet connection in your home office serve you on a personal level at all? Do you use it to visit hatrack or download music? Then you can't deduct the entire cost as a business expense.
Posts: 14428 | Registered: Aug 2001
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posted
I don't pass the sales tax on to anyone. I've effectively paid it through the price I paid for the house.
If I ask you to buy me something at the store and I pay you back, cost and tax, when you give it to me, who has paid the sales tax on that item?
I'm not really holding my breath on this, but I have to check. And believe me, if this does result in a bigger refund, that money will be going back into the economy to pay for a screen on our patio, fencing the yard, a deck, retaining wall in the back, etc.
Posts: 4625 | Registered: Jul 2002
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posted
"I don't pass the sales tax on to anyone. I've effectively paid it through the price I paid for the house."
So if you sell the house, the buyer gets to deduct the sales tax paid on lumber/etc? Then if that buyer sells it, the next buyer gets to deduct the sales tax? Etc Precisely how many times does one set of sales taxes get to be deducted?
Joe's hot dog stand buys paper plates from the supermarket, and pays sales tax. Does that mean you get to deduct his sales tax along with your sales tax for the finished product? The workers who made those paper plates paid income tax, do you get to subtract their tax from your income?
The developer is the original owner. And unless s/he set up the contract correctly, the building contractor (or subcontractors) who physically paid the sales tax is the only one who gets the deduction.
quote:An aircraft, boat, home (including mobile and prefabricated), or home building materials, if the tax rate was the same as the general sales tax rate.
aspectre, I'm not holding my breath, but I'd be a fool not to at least check it out when the publication that came from the IRS distinctly says home on it.
Posts: 4625 | Registered: Jul 2002
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quote: Joe's hot dog stand buys paper plates from the supermarket, and pays sales tax.
When I did the shopping for my uncle's gas station, either buying just about everything from Costco or pizza, we never paid sales tax. At Costco I specifically had to sign a statement saying that the items were for resale only.
Posts: 3446 | Registered: Jul 2002
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posted
In Virginia, back when I was in business, the rule was that only things directly being sold to customers on which there would be sales tax paid were tax exempt.
There was dispute about paper plates, since they were included with a meal on which sales tax was being paid. Napkins left out for customers to take were not tax exempt, but some people claimed that if you handed the customer a set amount of napkins with the meal they could be exempt.
Crazy stuff. I have no idea if people actually paid attention to it. We bought such things for the employee kitchen, and they definitely weren't exempt in that scenario.
posted
All I know is that there wasn't a penny for sales tax paid and we even bought things for use by the station, but not for the customers. For example, paper towels to clean up messes and computer paper to write on.
Posts: 3446 | Registered: Jul 2002
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posted
I'm sure this varies widely by state. I know in Virginia it was the most common form of tax evasion before eshopping came along. Posts: 26071 | Registered: Oct 2003
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Boon
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posted
quote: Someone told my wife that the cost of a new home is deductible. They said that even though no sales tax is shown on the price of the home, it's still there in all the material, etc. that went in to it.
Anyone know anything about this? I would guess that if it is true, it would only apply to the amount actually spent in 2004 - our down payment and possibly any principal we've paid.
You can't deduct sales taxes unless you actually paid them. If the builder paid sales tax on the materials to build the home, he's writing those off as business expenses. You can't write them off too.
If, however, you are charged sales tax when you purchase a home, you can add the amount of the sales tax to the amount you use for the sales tax deduction. (Either the amount on the table or the amount of sales taxes you actually paid.)
Your down payment and principal are not tax deductible, but your mortgage interest, real estate taxes, points, etc. are. Check out the link at the top of this post for more information on that.
quote: I owed money to the state last year, but I'll be getting a refund this year. The Schedule A instructions seem to imply that I can deduct both what I paid last year and what I had withheld this year.
Yep. Be aware, however, that if you itemize and receive a state refund, the refund is taxable income next year.
quote: Susie and I have lived together for over a year now. Since she works and I don't, and Arkansas doesn't recognize 'common law' marriage, can she claim me as a dependent?
Can she file as Head of Household, even though she is single?
quote: Generally, to qualify for head of household status, you must be unmarried and not entitled to file as a qualifying widow or widower with a dependent child. You must also have provided more than half the cost of maintaining as your home a household that was the main home for a qualifying person.
posted
Thanks for the help Boon. That's pretty much what I expected, but I had to ask. We did buy quite a bit of new furniture, so we'll be digging out all our receipts for the past year. It's very nice to have a meticulous wife that keeps everything sometimes.
Posts: 4625 | Registered: Jul 2002
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I was working out my taxes online tonight in preparation for e-filing, and I got stumped.
This is the first year I'm trying to do it pretty much solo, instead of asking my sister (the CPA) to do it for me...because the program remembers all the stuff from last year, and I only had one W-2 so it should be simple..
But now I can't figure whether I should deduct my son's college tuition fees (the part we paid that wasn't covered by his scholarships or grants), as part of MY income tax return, or part of HIS income tax return. Since he only made about $2000 last year (mostly from tutoring). Technically, he really paid it all himself, but I think it would help my return more (it was all paid from the same account).
Anyway, can't get ahold of sis tonight to ask her opinion, so I guess it will have to wait at least one more day...
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