CLIENT ALERT

March 1, 2005

AMERICAN JOBS CREATION ACT 2004- STATE SALES TAX DEDUCTION

Included in the recently passed American Jobs Creation Act 2004 is a new state sales tax deduction, which has the potential for creating tax breaks for individuals, especially for taxpayers residing in states where there is no income tax. Under the new legislation, taxpayers will have the choice of deducting state and local income taxes or state and local general sales taxes as an itemized deduction on their federal income tax returns. This will be made available on 2004 and 2005 tax returns.

Options for Itemizing

Under the new rules, taxpayers who itemize will be given two options in which two determine how much sales tax to deduct, (1) by accumulating receipts or (2) using tables be prepared by the Secretary of the Treasury, based on average consumption by taxpayers on a state-by-state basis, taking into account filing status, number of dependents, adjusted gross income and rates of state and local general sales tax. Although, the table will give taxpayers the convenience of not having to save receipts throughout the year, it offers only an average and individuals may benefit more from calculating the total themselves.

Who Will Benefit

All US states will be eligible, but this deduction will prove to be most beneficial to residents of the seven states that do not have a state income tax: Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming. It may also benefit any individual who has made several major purchases during the year, for example a boat or a new car, causing them to pay an increased sales tax for the year.

If you feel that this may affect you for the tax years 2004 and 2005, or if you have any additional questions please contact our office at your earliest convenience and we would be happy to address your needs.