Tax Question: Deferred Payment [Archive]

Opal1

2-7-2006, 1:58 PM

Hi all,

I'm doing the math on taking a sales tax deduction versus taking a state income tax deduction.

I made a major purchase in 2004, but it had delayed billing for 12 months. The receipt I have says 2004, but I didn't get bill until 12 months later in November.

Any idea what year this sales tax can be used in?

Thanks!

malachitecat

2-7-2006, 2:19 PM

Hi all,

I'm doing the math on taking a sales tax deduction versus taking a state income tax deduction.

I made a major purchase in 2004, but it had delayed billing for 12 months. The receipt I have says 2004, but I didn't get bill until 12 months later in November.

Any idea what year this sales tax can be used in?

Thanks!

I believe the year that it was paid, as most taxpayers are cash basis.

kranky

2-7-2006, 2:20 PM

I think you can make a good argument that you didn't pay the tax until 2005 if that suits you better. But whether it would stand up to IRS scrutiny, I don't know. I know I'd want to have some paperwork that showed I didn't get a bill until 2005 in case I got audited.

Opal1

2-7-2006, 2:27 PM

I believe the year that it was paid, as most taxpayers are cash basis.

That's what I was thinking too.

I think you can make a good argument that you didn't pay the tax until 2005 if that suits you better. But whether it would stand up to IRS scrutiny, I don't know. I know I'd want to have some paperwork that showed I didn't get a bill until 2005 in case I got audited.

I was thinking the same thing. I have both the receipt and the bill/statement I received.

If the sales tax deduction doesn't come close to beating the state income tax deduction, then it's a non-issue for me obviously.

Thanks for replying!

labgeek

2-7-2006, 2:37 PM

Interesting question...

But while you didn't pay the sales tax until 2005, it was collected and paid (on your behalf) to the state and/or local govt. by the lender in 2004.

If I buy a car and put nothing down, then tax is included in the principal. So would I have to amortize the tax portion of the purchase over the life of the loan. I doubt it.

You paid the tax (albeit not out of pocket, but through aquiring a debt) at the time of purchase.

Opal1

2-7-2006, 2:52 PM

Interesting question...

But while you didn't pay the sales tax until 2005, it was collected and paid (on your behalf) to the state and/or local govt. by the lender in 2004.

If I buy a car and put nothing down, then tax is included in the principal. So would I have to amortize the tax portion of the purchase over the life of the loan. I doubt it.

You paid the tax (albeit not out of pocket, but through aquiring a debt) at the time of purchase.

Good points! I'll have to see if I can find any IRS documentation now that my curiosity is piqued.

labgeek

2-7-2006, 3:05 PM

http://www.irs.gov/irb/2005-14_IRB/ar18.html

Section 164(a)(3) provides, in part, that taxpayers may deduct state and local income taxes in the taxable year the taxes are paid or incurred. Under § 164(b)(5), taxpayers may elect to deduct state and local general sales taxes in lieu of state and local income taxes

So the question becomes when does the IRS consider it "paid or incurred".

Off hand I don't see it answering that particular question.