Tennessee taxpayers have new option when filing this year
WASHINGTON — If your holiday shopping spree included big-ticket items, you might want to hang on to those receipts.
For the first time in about two decades, Tennesseans will be able to deduct their state sales taxes from their 2004 federal taxes.
Members of Congress from Tennessee pushed for the change because the state doesn’t have a broad-based income tax. People in states that have such income taxes can deduct what they pay from their federal tax return.
The new benefit is available to people who itemize — nearly a fourth of taxpayers in Tennessee.
Economists predict some additional taxpayers might choose to itemize instead of taking the standard deductions — $4,850 for a single person and $9,700 for a married couple filling jointly — now that they can deduct their sales taxes.
State officials estimate itemizers could save on average $470 because of the change, according to Emily Richard, a spokeswoman for the Tennessee Department of Revenue.
Taxpayers can use standard tables produced by the Internal Revenue Service to estimate how much of a sales tax deduction they should take.
The other, more complex option, is to add up their receipts to calculate a more exact figure. However, that probably only makes sense for people who spent unusually high amounts in a given year, said Nashville accountant Charles Frasier, a partner at Frasier, Dean & Howard PLLC.
“People who buy a lot of rather large items and have rather heavy consumption during the year, that might be something they want to do,” he said.
In a few instances, people can use the tables and also take additional deductions for high-dollar items identified by the IRS. Examples include purchases of cars or motor homes.
The tables rely on estimates of what people with certain incomes are likely to spend in a given year. For example, a Tennessean who earns between $40,000 and $50,000 and claims two exemptions would reduce their taxable income by $916 once their sales taxes were accounted for.
Other states without income taxes that are helped by the change include: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Taxpayers in those states, like in Tennessee, pay a sales tax but not a broad-based income tax.
Tennessee has a limited income tax on interest from bonds and notes and dividends from stocks. People who take those as deductions cannot also deduct their sales taxes but will be able to choose whichever option gives them a bigger deduction.
University of Tennessee economist Bill Fox said he didn’t think the new tax benefit would change buying habits much, although he said it might prompt people to go ahead with the purchase of something big such as a car.
He said people will have more money in their pockets and that would be of some benefit to the state. However, he said it would not amount to a major change in Tennessee’s fiscal condition.
The new benefit isn’t a novel concept. Taxpayers in states without income taxes used to be able to deduct their sales taxes from their federal forms, but that benefit was eliminated in the 1980s.
The new change was approved by Congress this year and will have to be reauthorized in two years.
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On the Net:
IRS tables: http://www.irs.gov/pub/irs-pdf/p600.pdf