Many Texas residents are targeted by IRS audits every year. Some may even be finding themselves at the center of audit fraud cases and facing severe penalties. In order to avoid such a downfall, it is important to know precisely what may be deducted from your federal income taxes. In some cases, you might be listing deductions that are ineligible and would be disallowed in the event of an IRS audit. Conversely, you may not be taking advantage of other deductions that can help lower your taxes. Dealing with deductions and taxes in general can complex and confusing, making it beneficial to consult with an attorney with experience in tax law.
Taxpayers are prohibited by law to deduct both state income tax and sales tax one their federal income tax returns. Because Texas does not require individual income tax, residents of the state may freely deduce general sales tax. The precise amount they may deduct is calculated using a table.
Property taxes interact with federal income taxes in complicated and often unexpected ways. While the IRS does not always examine property tax bills with much scrutiny, high deficits have prompted the agency to become more thorough in looking for violations and disallowing ineligible deductions.
In general, only real estate taxes that are paid for public welfare are deductible. For instance, taxes paid for the resurfacing of streets are considered deductible, whereas assessments that add to the value of one’s property are not. Taxpayers may not deduct the portion of their property taxes allocated to trash pickup or similar services unless the funds controlling those services are not earmarked and taxes are instead sent into a general revenue fund. The rules regarding deductions from property tax are full of similar exceptions, stipulations and loopholes, making it crucial to meet with a tax expert to ensure one takes advantage of any lesser-known deductions.
Source: Fox Business, “Don’t Forget to List These Taxes You Can Deduct,” Bonnie Lee, Oct. 4, 2012