Balancing sales tax with your SALT deduction


Q. My question for you is about the SALT deduction. I deduct my property taxes of $5,300 and I also deduct N.J. sales tax in the amount of $707. My total itemized deductions are about $12,600 (with medical and charitable deductions included and more than the new standard deductions for singles). Under the SALT limit would I still be allowed to include that sales tax so that I can exceed the new standard deduction of $12,000? Or should I “gin up” my charitable contributions?
— Taxpayer

A. It will take some time for us all to adjust to the new tax laws.

Under the federal Tax Cuts and Jobs Act of 2017, a single taxpayer is limited to a total maximum deduction of $10,000 for state and local income taxes and real estate taxes, commonly referred to as the State and Local Tax (SALT) deduction.

This limit applies for tax years 2018 to 2025 and is set to expire after 2025, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Eatontown.

But, he said, taxpayers can continue to elect to claim sales taxes in lieu of state and local income taxes where the sales tax amount is greater than the state and local income taxes paid during the year.

“Based on your property taxes of $5,300, you would currently be able to claim a sales tax deduction for as much as $4,700,” he said.

The IRS publishes a sales tax table for all states that impose a sales tax applicable to everyday purchases, such as department store and restaurant expenditures (see the instructions to IRS Form 1040, Schedule A – Itemized Deductions).

That table is based on gross income and exemptions claimed, and its use avoids the need to keep a record of small sales tax payments, Becourtney said.

“I see that per the table, as a New Jersey resident, your $707 sales tax deduction is the result of your claiming one exemption and your income being between $50,000-$60,000,” he said. “In addition to the amount allowed from the IRS table for `everyday purchases,’ the sales tax paid on big- ticket items, such as the purchase of an automobile, can also be added in determining the total sales tax deduction.”

You have correctly noted the new standard deduction for a single taxpayer of $12,000 for 2018.

If you have attained the age of 65, the standard deduction is increased by $1,600 to $13,600.

“To the extent your total itemized deductions exceed your standard deduction, you will obtain a federal income tax benefit at your marginal income tax rate for your additional charitable contributions, if any,” Becourtney said.

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