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Okay, I think Turbo Tax is calculating my sales tax deduction wrong, but I might be calculating it wrong, so I thought I'd post what the difference is here and ask this board....

When I use the Turbo Tax interview it asks me for my "Total Sales Tax Rate" (which I was able to find online thanks to this board) and then my "Cost of Major Purchases - Do not include sales tax paid", so I added them up and put it in that box and now I'm reviewing my tax return, right before I send it off and...it's higher than I expected.

I purchased 2 cars and 1 boat during 2004. The actual sales tax I paid for these items, according to my receipts is about $4,500, but Turbo Tax is giving me approximately $5,500 for these items based on the amount I entered for "cost of major purchases" (which does agree to my receipts - the line right before where they calculated the sales tax amount for each item).

So, I believe the ethical, correct and legal thing to do is to override Turbo Tax and put my number in, but I didn't want to do that before I asked this board to make sure perhaps I'm not calculating it wrong.

Thanks,
e
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Okay, I think Turbo Tax is calculating my sales tax deduction wrong, but I might be calculating it wrong, so I thought I'd post what the difference is here and ask this board....

When I use the Turbo Tax interview it asks me for my "Total Sales Tax Rate" (which I was able to find online thanks to this board) and then my "Cost of Major Purchases - Do not include sales tax paid", so I added them up and put it in that box and now I'm reviewing my tax return, right before I send it off and...it's higher than I expected.


Your sales tax deduction should be the sum of the table amount based on your AGI and the sales tax paid on your major purchases. Did you, perhaps, forget to include the table amount?

Ira

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Did you, perhaps, forget to include the table amount?

No, I didn't forget that, but...

I'm wondering if it has something to do with the "general sales tax rate"...I've been reading the publication and it seems that you get a deduction on vehicles for the general sales tax rate, even if you actually paid less.

I'm going to try and see if I can figure out exactly how Turbo Tax came up with their number.

Thanks,
e
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Okay, I know what Turbo Tax is doing...

Turbo Tax took the amount I entered as the cost of my purchases (for my 2 vehicles and 1 boat) and multiplied it by the city + county + state sales tax rates.

What I actually paid, according to my invoices is the cost of my purchases multiplied by my state sales tax rate. I didn't pay county or city sales taxes on these purchases. I don't know why, but I wasn't charged it. It may be interesting to note that I didn't purchase any of these items in the city I live in (but it was the same state and same county).

So, is Turbo Tax correct and I get a deduction for more than I actually paid, or should I override it to the amount I actually paid?

Thanks,
e
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So, is Turbo Tax correct and I get a deduction for more than I actually paid, or should I override it to the amount I actually paid?

C'mon, you know the answer. Do the instructions say "deduct the greater of what you actually paid or what some software comes up with"?

Phil
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C'mon, you know the answer. Do the instructions say "deduct the greater of what you actually paid or what some software comes up with"?

Well, the reason I posted initially is because I thought the software was wrong, but then I tried to read Pub. 600 in regard to this issue, and frankly I'm still a little confused.

Publication 600 states:

Rate less than general rate.
Sales taxes on food, clothing, medical supplies, and motor vehicles are deductible as a general sales tax even if the tax rate was less than
the general sales tax rate.


I'm not sure what the "general sales tax rate" is - is that the state + county + city? Because if it is, then I think Turbo Tax is correct and even though I actually paid less, since two of the large ticket items were for "motor vehicles" then I believe I get to deduct more than I actually paid.

If on the other hand, the "general sales tax rate" is actually just my "city sales tax" and does not include the state nor does it include the county tax rate, then I need to override Turbo Tax and deduct the amount I actually paid.

So, I'm sorry if I'm not bright enough to figure this out on my own or perhaps I should just be sorry for not writing my post clear enough so people would understand why I wasn't sure if Turbo Tax was correct or not. Either way, I am still unsure as to the answer that is so obvious to you. No matter, I can figure it out on my own. Sorry for the bother.

e
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euphoriant writes (in part):

Well, the reason I posted initially is because I thought the software was wrong, but then I tried to read Pub. 600 in regard to this issue, and frankly I'm still a little confused.

Publication 600 states:

Rate less than general rate.
Sales taxes on food, clothing, medical supplies, and motor vehicles are deductible as a general sales tax even if the tax rate was less than the general sales tax rate.


I reply:

Don't mind Phil -- he sometimes gets a little grumpy this time of year. He'll get over it.

As for your question, I read the excerpt you cite as saying that you can deduct the tax paid on motor vehicles as a sales tax even if you don't pay the general sales tax rate because motor vehicles are subject to a special, lower sales tax rate. In other words, even though it's at a lower rate, the tax on motor vehicles is still a sales tax. But (as you suspected) you only get to deduct what you actually paid. --Bob
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Thank you, and I'm sorry - it's been a long day for me too.

e
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Rate less than general rate.
Sales taxes on food, clothing, medical supplies, and motor vehicles are deductible as a general sales tax even if the tax rate was less than
the general sales tax rate.


I'm not sure what the "general sales tax rate" is - is that the state + county + city? Because if it is, then I think Turbo Tax is correct and even though I actually paid less, since two of the large ticket items were for "motor vehicles" then I believe I get to deduct more than I actually paid.


I can't find any way to reach that conclusion. The quoted text says "sales tax is deductible...." You know how much sales tax you paid. How in the world could more than you paid be deductible?

If on the other hand, the "general sales tax rate" is actually just my "city sales tax" and does not include the state nor does it include the county tax rate, then I need to override Turbo Tax and deduct the amount I actually paid.

This reasoning is irrelevant.

So, I'm sorry if I'm not bright enough to figure this out on my own or perhaps I should just be sorry for not writing my post clear enough so people would understand why I wasn't sure if Turbo Tax was correct or not. Either way, I am still unsure as to the answer that is so obvious to you. No matter, I can figure it out on my own. Sorry for the bother.

No bother. Judging by your many contributions to the Fool, I know you're bright enough. Did you read the Schedule A instructions?

2. The Optional State Sales Tax Tables,
which are available in Pub. 600. If you use
the Optional State Sales Tax Tables, you
can add to the table amount any state and
local general sales taxes YOU PAID [emphasis added] on motor
vehicles, boats, and any other items speci-
fied in Pub. 600. The deductible amount of
tax on motor vehicles cannot exceed the tax
that would have been imposed at the gen-
eral sales tax rate. For boats, the tax is
deductible only if it was imposed at the
general sales tax rate. See Pub. 600 for
details.


I don't see how it could be clearer.

Phil
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Did you read the Schedule A instructions?

Actually no, I didn't. As I stated in my post I was using Turbo Tax.

I entered the information Turbo Tax requested in their interview which was my city tax rate, my county tax rate, my state tax rate and the cost of the purchases of large items that could be added to the optional table. But, I already said that in a previous post.

I was the one who figured out that the amount Turbo Tax was calculating for the table + large items was greater than I actually paid. How many other people, who are using Turbo Tax, do you think even checked this small figure? "No bother."

I knew something was up, so I clicked on the "help" link in Turbo Tax. Sorry, but they don't take you to the instructions for the form, they take you to their website for you to download the publications.

I also stated in a previous post that I read Publication 600.

I don't see how it could be clearer.

Perhaps if they defined the words they were using it would be clearer. They do not define "general sales tax", yet they keep using that phrase.

In my opinion, if this was so obvious, Turbo Tax wouldn't have wrote their program the way it did. There is no separate place for you to enter in just the sales tax you paid if you are using the tables plus large items like motor vehicles. Turbo Tax has you enter in the cost of the purchases (like I said in my previous post) and then they calculate your deduction (sales tax) for you.

It's not an easy field to override, so I am fairly certain that taxpayers have already taken a larger deduction than what they paid, because they either never checked it, or they read the publication the same way Turbo Tax did.

From Publication 600...
Sales taxes on food, clothing, medical supplies, and motor vehicles are deductible as a general sales tax even if the tax rate was less than
the general sales tax rate.


I guess Turbo Tax read that to mean that they could calculate the tax based on the cost of those purchases, because you get to deduct the "general sales tax rate" for these items, even if the rate you paid was less. I guess Turbo Tax wasn't able to find a definition for "general sales tax rate" and read this phrase incorrectly, even though it was so obvious, and then, due to their stupidity, wrote their program wrong.

And let's not forget the obvious - I'm even more stupid for checking the tax return after I was done entering in the information into Turbo Tax, realizing there was a discrepancy and then asking the board if I'm calculating it wrong or if Tubo Tax is calculating it wrong. I mean it's not like I only do one tax return a year and this is the first year for this sales tax deduction or anything. Oh wait, this is true.

I hope you have a better day today,
e
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And let's not forget the obvious - I'm even more stupid for checking the tax return after I was done entering in the information into Turbo Tax, realizing there was a discrepancy and then asking the board if I'm calculating it wrong or if Tubo Tax is calculating it wrong. I mean it's not like I only do one tax return a year and this is the first year for this sales tax deduction or anything. Oh wait, this is true.

No, this is not true. Sales tax was fully deductible until 1986. I don't recall if the deduction ended in 1986 or was subject to the 20%/year phaseout rules between 1987-1990.

Ira
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I don't recall if the deduction ended in 1986 or was subject to the 20%/year phaseout rules between 1987-1990.

Sales tax just disappeared. Non-mortgage personal interest was phased out over a few years.

Phil
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Did you read the Schedule A instructions?

Actually no, I didn't. As I stated in my post I was using Turbo Tax.

I think this is something we all need to look at.

A software program is not a replacement for doing one's own due dilligence. All of us should read the instructions for the forms we are filling out, whether we use a tax preparer, software, or a ballpoint pen.

- Megan
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I don't think people are trying to pick on you here. It just seems that since you are astute enough to pick up on the fact that TT blew it, then you should have the common sense to realize that you can't deduct more than you paid.

I agree with Megan, that there is an overreliance on DIY tax software. People need to understand the rules, so when the programmers mess up the program, the user can catch it. I see this alot with depreciation - for example, TaxAct insisted that it be deducted twice, when common sense said no way.



I am fairly certain that taxpayers have already taken a larger deduction than what they paid, because they either never checked it, or they read the publication the same way Turbo Tax did.

That doesn't make it right, or reduce your ability to think for yourself.

Trust yourself before a program (that was written by fallable humans, by the way).

SA
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This situation raises some interesting questions beyond what the OP'er asked the board.

The gov't has been promoting e-filing for all sorts of reasons. Now when consumers use commercial tax preparation products such as TurboTax (TT) or TaxCut(TC) to submit their tax returns and they make a mistake, technically (TT, TC, etc.), and the "average Joe" doesn't know any better but just follows the instructions of the tax preparation software........ Who is at fault?

And then, what about all the Part Time "tax preparers" that crop at this time of year and use whatever tool they have to prepare an individual's tax return for a fee and the return is "technically" wrong?

I think it would very interesting to learn what the OP'ers results would be when using the IRS's free tax software preparation tool. I'm not a betting person but I would guess he would come up with the same results as his experience with TT.

I strongly agree that it is ultimately the taxpayers' responsibility for their filed tax returns. But on the other hand, if the Fed's are encouraging e-filing it seems to me they ought be "certifying" the various tax preparation tools out there in the public.

Best regards,
Duane








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I think it would very interesting to learn what the OP'ers results would be when using the IRS's free tax software preparation tool. I'm not a betting person but I would guess he would come up with the same results as his experience with TT.

The IRS doesn't have ANY tax preparation software. The free-file program is linked to commercial software vendors who are partnering with the IRS. So, the OP would just end up using TT or TaxCut or one of the other commercially available products.

Ira
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For what's it worth - I too purchased a car in 2004. I put in the sales price and TT calculated a higher sales tax deduction than I paid. I just went to the line item and overrode the amount with the correct amount from the receipt.

Good luck with your taxes,

Satie
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Ira said;

The IRS doesn't have ANY tax preparation software. The free-file program is linked to commercial software vendors who are partnering with the IRS. So, the OP would just end up using TT or TaxCut or one of the other commercially available products.

Exactly my point Ira! But how many taxpayers are savvy enough to know the difference between what the program says the deduction should be vs. what the actual number should be? Isn't it reasonable to assume that most taxpayers know so very little about tax law that they will trust what the IRS, "partnering," "commercial" software told them the deduction should be, with the taxpayer thinking, "I must have screwed up somewhere."?

I'm not being argumentative, but I find this to be an interesting topic, from my point of view.

Best regards,
Duane


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The quoted text says "sales tax is deductible...." You know how much sales tax you paid. How in the world could more than you paid be deductible?

I was reviewing old posts and saw this chain How obnoxious to berate a guy for asking a simple question about sales tax. It appears to me that by taking the standard deduction for sales tax based on your income using the Optional State Sales Tax Tables is one way to deduct more than you paid if you actually paid less than this standard amount in tax over the year.

So, it seems like a fair question to ask if the generousity extends to the area of major purchases. I'm sure that everyone doesn't have the time to focus on all the details of these rules (some of us are busy driving around a couple of cars and a boat, I guess) and thats why they post their questions here.
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