February 11, 2005 UNT Inhouse publication: Tax law changes may mean more refund money in your pocket this year

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Tax law changes may mean more refund money in your pocket this year

Changes to the tax law — including more areas to itemize — may have Texans seeing bigger tax returns this year.

For 2004 and 2005, the biggest tax change is that those who itemize may deduct state and local sales tax when calculating their federal taxable income, says Elizabeth Plummer, assistant professor of accounting. The new law allows people across the country to deduct either sales tax or, in states that have it, income tax.

In Texas, which doesn't have a state income tax, taxpayers have two options for deducting sales tax. They may either deduct the actual amount of sales tax paid during the year based on sales receipts they have saved all year, or they may use figures from IRS tables with approximations of state sales tax based on income and family size.

Deduction of sales tax on motor vehicles, boats, planes, homes or home building materials is subject to limitations. Since the IRS tables don't include local sales tax rates, Plummer suggests visiting www.window.state.tx.us/taxinfo/local to obtain city tax rates for your deductions.

Also this year, donations made to aid tsunami victims through Jan. 31, 2005, can be itemized and deducted on 2004 tax returns.

Plummer says taxpayers' best resource for tax information is the IRS web site, www.irs.gov.

"The IRS has spent a great deal of time developing a good, easy-to-use web site," she says. "The section of ‘Frequently Asked Questions' is very useful. You can search by category or keyword on almost 200 different tax topics from ‘scholarships' to ‘farming.'"

The frequently asked questions page is available at www.irs.gov/faqs/index.html.