MLR

Sales tax deduction may end with 2013

Categories:

The itemized deduction for state and local sales and use taxes is scheduled to expire at the end of this year. While Congress may still act to extend the deduction into future years, there is no guarantee the extension will be approved.

For 2013, the sales tax deduction is available as an alternative to the itemized deduction for state and local income taxes. So the primary beneficiaries of the sales tax deduction tend to be individuals who live in one of the states that do not have a state income tax. However, if you are considering the purchase of a big-ticket item, such as a car or a boat, it may be advantageous to consider completing the purchase in 2013 if you can benefit from the sales tax deduction.

If you live in a state without an income tax: Consider completing a major taxable purchase during 2013 if the sales tax deduction will push your itemized deductions over the standard deduction threshold. The standard deduction threshold is $12,200 for married couples, $8,950 for heads of household and $6,100 for unmarried taxpayers or married couples filing separately.

Even if you live in a state with an income tax: Some people may not have a significant income tax obligation. For example, a retiree may owe no state income tax because her pension and Social Security benefits are exempt from state tax and she has little other income. At the same time, she may itemize her deductions because she pays real estate taxes, has deductible medical expenses, pays mortgage interest and/or makes charitable contributions.

If your sales tax already exceeds your state income tax or is only slightly less than your state income tax, accelerating big-ticket purchases into 2013 may be advantageous.