Federal tax law allows taxpayers who elect to itemize deductions to deduct their state and local income taxes or state and local general sales taxes to reduce their federal income tax.
This law is especially important for residents of seven states that do not have an income tax, but do have sales taxes. They are: Florida, Nevada, South Dakota, Tennessee (taxes, interest and dividends), Texas, Washington and Wyoming.
New York State residents receiving a federal government pension, a New York State government pension or a New York State local government pension are not subject to New York State or New York City income tax. So a UFT retiree who is a resident of New York State and receiving a pension from the Teachers’ Retirement System benefits from this law.
Under this law, individuals who elect to file an itemized federal income tax return for 2015 must file “Schedule A–Itemized Deductions” and complete line 5 “State and local (check only one box): a. Income taxes, or b. General sales taxes.”
By electing “b. General sales taxes” you have two choices. First choice is actual expenses; you can deduct the actual state and local general sales taxes you paid in 2015. Generally you can deduct the total, but the total may have to be adjusted for certain items (see “2015 Instructions for Schedule A (Form 1040)” for complete details). The IRS cautions “you must keep your actual receipts showing general sales taxes paid to use this method.”
The second choice is to use the federal “2015 Optional State Sales Tax Tables.” This choice is a calculation requiring no receipts to provide in the event of an audit. The tables are based on your adjusted gross income from federal “Form 1040: U.S. Individual Income Tax Return,” line 37 (plus any nontaxable Social Security benefits, see page A–4 of Schedule A Instructions for complete list) and the number of exemptions you claimed on Form 1040, line 6d.
Full-year New York State residents use the New York table found on page A–16 of Schedule A Instructions. The table represents only the allowed New York State amount.
Full-year New York City residents use the “2015 Optional Local Sales Tax Tables–Local Table A” found on page A–18 of Schedule A Instructions. Local Table A amount is needed to complete the worksheet on page A–5 of Schedule A Instructions.
In addition, you can add sales taxes paid on specified items such as motor vehicles, boats or major home renovations (see page A–6, Line 7 of Schedule A Instructions for complete list).
Calculate the allowed sales tax deduction yourself using the Worksheet on page A–5 of Schedule A Instructions. To assist you in completing the Worksheet use the information below as a guide.
Line 1: comes from New York State table on page A–16
Line 2: comes from Local Table A on page A–18
Line 3: Enter 4.875 (NYS/NYC sales tax rate of 8.875 percent less NYS only rate of 4–4.875 percent Local Sales Tax Rate)
Line 6: Multiply line 2 by line 3
Line 7: Enter sales tax paid on specified items if applicable
Line 8: Add lines 1, 6 and 7
Calculate the allowed sales tax deduction yourself or use the “Sales Tax Deduction Calculator” on the IRS website at www.irs.gov/individuals/sales-tax-deduction-calculator.
Residents living in a state that has both income and sales taxes can deduct whichever is greater, but not both. Be sure to check whether it is better to take the standard or itemized deductions.
Please read the instructions carefully and/or consult your tax adviser for all tax matters.