| American Jobs Creation Act of 2004 |
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November 4, 2004
The American Jobs Creation Act of 2004 is now law. While this new tax law applies primarily to corporate America, there is one provision of particular significance to residents of the State of Washington.
The 2004 law restores the deduction for state and local sales taxes. Due to the significance of the new deduction and the recordkeeping it may require, I want to give you the details now, rather than wait until the end of the year.
The sales tax deduction is in lieu of the deduction for state income taxes—if you are paying a state income tax because you earned income from an income tax state, you must make the choice on what tax to deduct—you cannot deduct both.
You have the option of accounting for all of the sales taxes you pay, or using the amount from tables that will be provided by the Internal Revenue Service. The tables will be based on family size, income and the rates of tax that apply for residents of the State of Washington. The tables will be limited to a maximum income of $139,500. If your income is significantly higher and your spending is commensurate with your income, the tables will not provide an adequate deduction. If you use the tables, you will also be allowed to deduct the sales tax on motor vehicles, boats, and “other items specified by the IRS.” It is not yet known what those other high cost items might be. Under this definition, the sales tax paid on an automobile lease will be allowed in addition to the amount specified in the tables.
I bring this new law to your attention now to give you time to accumulate the necessary records to support your tax deduction, and to point out a tax planning opportunity. The purchase of a $25,000 automobile will result in an income tax savings of approximately $500 to a taxpayer in the 25% tax bracket who itemizes deductions. This may influence your decision to purchase that new car in December or January.