Use Taxes to Reduce Your Tax
Are you planning to itemize on your 2015 federal income tax return? If so, you can 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 taxes can you deduct on your personal return?
State and local income taxes or general sales tax. You can choose whichever gives you the most benefit.
Real estate taxes. Deductions include taxes you pay on your home or other real property you own (including property owned in a foreign country). Remember to check closing statements when you buy or sell property. 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. These taxes are imposed annually on the value of property other than real estate. Certain motor vehicle registration fees fit this description.
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.
Federal estate tax. If you inherit certain assets and are required to report the income from those assets on your personal return, you may be able to deduct a portion of the federal estate tax paid.
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, 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, give us a call at 615-750-5537.