Tax act Cuts and Jobs Act of 2017 (TCJA)

TCJA is to be applies to taxable year 2018 to 2025.

Itemized Deduction (Schedule A)

Itemized deductions are expenses pay by the taxpayer during the taxable year. Include the following:

  • Medical and dental expenses
  • Taxes paid
  • Interest paid
  • Gifts to charity
  • Applicable disaster, casualty and theft losses
  • Other miscellaneous deductions

In general if the taxpayer’s itemized deductions are greater than the standard deduction, the taxpayer should choose to itemize

This is the 2nd article of a series of 6. Today will be talking of Taxes paid.

The following taxes are deductible, subject to a limitation if not paid or accrued in carrying on a trade or business

1. State and local income tax, the deduction is for withheld taxes m estimated taxes and other specialized state or local tax payments. You can the state and local income tax withheld in the following forms; W-2, W-2G, 1099-G, 1099-R, or 1099-MISC.

The taxpayer can elect to deduct the state and local general sales tax instead of the state and local income tax. The taxpayer has two options for determining the sales tax deduction amount:

  • Can deduct the total amount of general sales tax paid by accumulating receipts showing the amount of sales tax paid
  • Or can use tables created by the IRS that provide the allowable deduction. If using the tables the taxpayer can add on sales tax paid with respect of motor vehicle, boat or other items specified by the IRS

2. State and local taxes paid on real estate owned by the taxpayer and not use for business can be deducted. A taxed based on the assessed value of the property and changed uniformly against all property under taxing authority’s jurisdiction is deductible.

The following real estate taxes are not deductible;

* Foreign real estate taxes, un less incurred in a trade or business activity

* Charges for improvements that increases the value of the taxpayer’s property

* Itemized charges for services to specific property or persons

For real estate sold during the year, prorate the real estate tax between the buyer and the seller according to the number of days each person owned the property

3. Personal property taxes are deductible if they satisfy the following requirements;

  • The property taxed is personal property
  • The value of the personal property determines the tax
  • The tax assessment is on a yearly basis

4. Foreign income taxes can be deducted if the taxpayer does not claim a credit for foreign income tax.

5. The following are nondeductible taxes;

  • Federal income taxes
  •  Social Security and Medicare taxes
  •  Federal and state estate and gift taxes

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