TAX TIP 1040+ Quality Tax Preparation....Some Taxes are deductable

Tax Tip

Some taxes are deductible on your income tax return

Are you planning to itemize on your 2013 federal income tax return? If so, it's likely you'll claim a deduction for taxes paid. According to IRS statistics, taxes are the most frequently claimed itemized deduction, as well as the largest. But what kind of tax can you deduct on your personal return?

State and local income taxes or general sales taxes are deductible for 2013, and you can choose whichever gives you the most benefit.

You can also deduct real estate taxes you pay on your home or other real property you own (including property owned in a foreign country). That's true even if you pay the tax into an escrow account managed by your mortgage holder. In that case, you can deduct the amount actually paid to the tax collector. Just be sure the entire payment is for taxes. Why? Assessments included on your real estate bill for improvements such as sidewalks and sewer lines are generally added to your basis in the property—meaning no write-off this year.

Remember to check closing statements, too, when you buy or sell property, because you can claim the portion of current real estate taxes you're responsible for. However, if you agree to pay delinquent taxes the seller owed at the time of closing, that expense is considered part of your basis in the property.

Personal property taxes are imposed annually on the value of property other than real estate. Certain motor vehicle registration fees fit this description.

Other taxes you can deduct include foreign income taxes. Caution: Instead of deducting these taxes, you have the option of taking a credit, which will reduce your tax bill dollar for dollar and may offer more benefit.

If you inherit certain assets and are required to report the income on your return, you may be able to deduct a portion of the federal estate tax paid. Claim this deduction on Schedule A, on the line for miscellaneous items.

Some taxes, such as self-employment taxes, are deductible elsewhere on your return. Other taxes are not deductible at all. Examples include marriage licenses, gift taxes, gasoline taxes, and Medicare taxes (including the 3.8% net investment income tax).

Feel free to contact us if you have questions about the deductibility of a tax you paid during the year, or if you received a refund of a tax you deducted in a prior year. We're here to help.

Joseph C Becker, CPB, MBA, CQP
Ten Forty plus Quality Tax Preparation & Financial Services
www.tenfortyplus.com
281-397-7777, Fax 281-397-7443
joeb@tenfortyplus.com