State and local income taxes, real estate taxes, and many other types of taxes can be included as federal tax deductions on your return, provided that you carefully follow the established procedures, and document everything.
• Briefly describes how taxes paid become tax deductions
• Lists the most common taxes considered to be deductible
• Explains how e-filing can really help when claiming itemized tax deductions
Make claiming deductions easier
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Paid taxes to anyone other than the IRS last year?
You can deduct them as federal tax deductions!
State, local, and foreign income tax, real property tax and personal property tax are all eligible itemized tax deductions.
To be deductible, the taxes must be paid some time during the year for which you are filing.
Note: any taxes imposed on you solely because you run a business, a farm, or have royalty or rental income should not be claimed as itemized tax deductions in this section. There are individual sections devoted to different types of income in your tax return. The taxes associated with those specific activities are entered on separate forms.
So, what taxes can be claimed as federal tax deductions?
Your local, state and foreign income taxes are claimed as itemized tax deductions the year they are paid. Since the amount of state and local tax you paid during the year is recorded on your W-2 forms, you will not have to reenter this amount to cliam it as an intemized deduction while e-filing. Never include any medicare or social security tax you have paid in any of your federal tax deductions.
Real estate taxes, which are payments made to the local property tax collector, can be included in your itemized tax deductions in the year they are paid. If you have a mortgage, you should receive an annual mortgage statement from your bank at the end of the year (Form 1098).
This statement reports the amount you have paid in real estate taxes.
If you do not have a mortgage, you still pay real estate tax, only it goes directly to the tax collector, and not through your bank. To figure out your annual real estate tax, you should add all the payments you have made to your tax collector during the year.
Good organization and record keeping are essential for thess itemized tax deductions. You should have canceled checks for each of your monthly payments as proof and as a tool for figuring your total in federal tax deductions.
Other taxes included in your itemized tax deductions
Personal property tax, which is a tax sometimes imposed on items you own such as jewelry, collectibles, and vehicles, is permitted as a part of your federal tax deductions in the year the tax is paid. To be added to your itemized tax deductions, the tax must be based upon the value of the property and must be collected each year.
Be careful when you claim property tax as one of your federal tax deductions! Standard fees that do not fluctuate with the property's cost, such as car registration fees, are not considered personal property tax and should never be added into your federal tax deductions. Do not include them in your totals.
Sidebar The easiest way to claim your taxes paid deduction, and all other deductions is to file online. Claiming deductions can be confusing, but you can make it simple and avoid costly mistakes, by using the H&R Block e-filing interview.
Various other taxes are valid itemeized tax deductions as well. The IRS can provide you with a list, or, if you file your tax return online, you'll be asked in simple terms about what taxes you paid and if you have proof of paying them. Just enter the amounts and the rest of the work is done for you.
Related IRS publications
If you file a paper tax return, you will need to attach Schedule A with your return. The instruction booklet for Schedule A provides further information about all "taxes paid" itemized tax deductions. But do yourself a favor: e-file your return, if you're going to deduct these types of federal tax deductions.
Note: you will need an Adobe Acrobat Reader to view these publications, which you can get here. (But you probably already have it.)
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