Have you ever been in that conversation with your spouse which starts out with them saying....No, I didn't really need to buy this _______ (fill in the blank with coat, couch, purse, jewelry.....whatever) but it was 40% off this week only so I just could not pass up the savings opportunity. I saved us lots of money by taking advantage of this fantastic sale.
Now, hopefully you are smarter than me, and before you open your mouth you decide whether this is a verbal battle that is worth fighting. I usually talk first and then regret later.
My point is of course, that buying something you do not need, regardless at what price (!!!), is still spending money needlessly. So, now that I got that off my chest lets talk about one small way the IRS actually helps us get back some of that money we spend on ..... everything.
When you file your tax return, one of the big choices is whether to (1) use the Standard Deduction or (2) Itemize your deductions. Now, the Standard Deduction, in 2015, allows you to reduce your reported income (which saves you taxes) by $6,200 (as individual) or $12,400 (as blissfully married) without having to provide any paperwork or really do anything (nice and simple is always great). But, if you have lots of deductions then you are allowed to "itemize" which means you can write off lots more of your expenses than the standard deduction allows. One of those "itemized" deductions is the ability to write off the sales tax you pay on all of those purchases you made throughout the year (yes Dear, even the ones On Sale). That's actually pretty nice.
The IRS rule actually says you can choose to write off either your state/local income tax or state/local sales tax. Since I live in Tennessee which has no income tax on your wages the choice normally taken in Tennessee is to use the sales tax approach.
So, many peoples first reaction is How do I know how many purchases I actually made in 2015? I don't keep all those receipts for groceries, gas, coffee (those Starbucks add up), gifts for your spouse (I heard I need to make more of these), furnishings, repairs to house, and on and on (it never ends...). Well good news. Our favorite uncle (that's the IRS) says we can choose to add up all of our receipts or instead to use their handy dandy chart which looks at your household income and exemptions (fancy word for your kids) and where you live and then they tell you what the average amount of sales tax you should have spent for the year. I like the chart idea as most people do.
But wait. Because just like those Ronco knives commercials, There is More!!! Your favorite Uncle says if you were fortunate enough to make an unusual purchase this year... like a boat, four wheeler, car, airplane then you can also add the sales tax for this special item onto your average sales tax amount. So now, you can actually go to your spouse and say... Dear, I think we need to buy a boat so we can save money on our taxes. I am sure that will be a wonderful discussion. Good luck with that.
So, when you are talking with your Tax Professional make sure you ask about your Sales Tax Deductions, especially if you were able to convince your spouse to buy that boat. Spend and save.... Spend and save.
Phil Chandler, CPA, MBA is a speaker, author and consultant on topics regarding tax, bookkeeping, accounting and business management. His education in accounting and engineering and background in accounting, construction and real estate provide him unique insights in what it takes to run successful businesses, especially in those specific industries.
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