Expenses that Uncle Sam allows taxpayers to deduct from their Adjusted Gross Income are referred to as deductions. Therefore, no tax is charged on such. However, to claim these deductions, one must itemize them, as opposed to opting for a Standard Deduction. There are many and different expenses that are deemed as deductible by the IRS. These include some of the taxes paid for a given tax year. Many, especially those who aren’t completely familiar with the tax process may not be aware of these taxes. These deductible taxes include:
Taxes for your State and Local Sectors
By and large, you will be able to deduct all state and local income taxes that you have paid. Some of the guidelines that apply to deduction of state and local taxes are:
- The state and local income taxes can only be deducted if they were paid on the year of filing, regardless of whether or not the taxes were due for that year.
- Both U.S. based and foreign income taxes are deductible. However, deduction on foreign income tax has some further qualifying policies. Moreover, if you claim a deduction against paid foreign income taxes, you cannot claim the Foreign Tax Credit for that year.
- You can either deduct the actual local and state income taxes paid or claim a standard amount of deduction.
- You can use your W-2 forms for the details of local and state income taxes withheld from your wages for that year.
- Those who pay installment taxes for estimated incomes are allowed to also deduct estimated state and local taxes paid for that year.
Real Estate Taxes
Real Estate taxes that are paid to state and local tax agencies are also usually tax deductible on the year that they are paid. As usual with the U.S. tax code, some of the regulations apply to these state and local real estate taxes.
- Real estate taxes must be established by the calculated value of the property.
- Taxes related to valuing of renovations such as sidewalks or sewage lines are not deductible.
- Real estate fees and fees for services such as refuse removal or water payments are not considered taxes and thus, cannot be deducted.