Last-Minute Deductions That Could Lower Your 2017 Tax Bill

As you work on finalizing your 2017 federal income tax return, you may be searching for some last-minute deductions to help reduce your tax liability. Here are a few places to consider:

Taxes You Paid

You can deduct most taxes you paid last year on your 2017 income tax return. The main exceptions are federal income taxes, Federal Insurance Contributions Act (or FICA) taxes, and estate or gift taxes. For many people, the most common deductible tax payments are personal property taxes, real property taxes, and state and local income taxes.

Personal property taxes include ad valorem taxes paid on vehicles, while real property taxes include taxes paid on your primary residence. Keep in mind that the $10,000 annual deduction limit for state and local taxes is effective for tax year 2018, so it doesn’t impact your 2017 tax return.

If you live in a state where you are fortunate to not have to file a state income tax return and you itemize deductions, then you are allowed a deduction for state and local sales taxes paid in lieu of the state and local income tax deduction. (Note: Even if you are in a state that has state income tax, you can take the higher of the state income tax or the state and local sales tax deductions. One caveat: you can’t take both.)

This can work two ways: If you saved your receipts throughout the year, you can add up the total amount of sales taxes you actually paid and claim that amount or you can take a “general sales tax deduction,” whichever is higher. Big spenders probably benefit from adding up all of their receipts; but with that being said, could you imagine adding up all of the sales tax on your receipts in any given year?

One modification to using the general sales tax deduction: you can also add in the sales taxes paid on “big ticket” items such as a motor vehicle, boat, plane, home, home addition, or major home renovations. That was a nice little bonus since most people buy new (at least new to the taxpayer – used cars qualify too) cars every couple of years.
If you don’t want to add up all of your receipts, then the IRS allows what is known as the “general sales tax deduction.” The IRS determines the amount you can deduct based on your income level and a “general spending habit,” building out the 2017 Optional State Sales Tax Table and the 2017 Optional Local Sales Tax Table.