New Math for Tax Deductions

Then compare your final sales-tax-paid number to the state and local income taxes you paid. In most instances, you're probably better off putting the higher number on your Schedule A, but there are some circumstances for which planning is necessary.

AMT Issues Again

If you're an alternative minimum tax candidate, your decision may not be so straightforward.

The issue is complicated, but here's a quick synopsis. Depending on where you live, your state and local taxes are not deductible for AMT purposes, says Perlman. So while the deduction lowers your tax bill for federal income tax purposes, it's worthless in AMT land.

On the flipside, you can deduct your sales tax paid when calculating your state tax bill.

So if you already know you're going to be stuck paying AMT, it may make sense to use the sales tax amount, even if it is lower than the state taxes paid. At least the sales tax amount will lower your state tax bill.

This stuff gets thorny, so be sure to talk to a tax pro about it.

Charge Up 2005

Whether you choose to deduct your sales tax paid or your state and local income taxes paid in 2005, you should probably save every receipt anyway, says Lawrence Shoenthal, a senior tax manager with Weiser LLP in New York City. That's because you never know which way will be more beneficial until you actually crunch the numbers.

And if you're planning on making any big purchases, do it before the year is out. This sales tax option is only available through Dec. 31, 2005, and while many tax pros think it will be extended, no one knows for sure.

So go spend some money. And save your receipts!

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