As we are gearing up for Thanksgiving, we recognize it as a time for gratitude, reflection, and appreciation. The early settlers celebrated the first Thanksgiving by giving thanks for their harvest in the New World and then shared it within their community, all for the greater good. But have you considered how taxes were designed for the greater good?
Okay, so it may be a stretch, but hear me out! Taxation was introduced in the United States to support the financial requirements of the Civil War. Since then, taxes have helped financially support infrastructure, defense, the justice system and a multitude of public services. While paying taxes might not be seen as a traditional act of gratitude, it is a civic duty that supports the collective well-being of society aka the greater good. So if it benefits the greater good, that’s like charity, right? And if it’s charity, it begs the question, can I deduct my tax contributions as charitable contributions?
The answer? Well maybe!
Consider that in some cases, the federal income tax you pay can be deducted on your state income tax return. Alabama, Iowa, Missouri, Montana and Oregon all allow you to take this deduction. Each state has their own parameters and limitations for how much can be deducted, but the bottom line is that it is still deductible. But out of 50 states, only these 5 allow the deduction.
It’s unfortunate news if you don’t file state tax returns in one of these five states. But the good news is that your state and local taxes (SALT) paid can be deducted on your federal income tax return. This has been an eligible deduction since 1913, when the federal tax return was introduced.
But with the good news comes the bad news. Those state and local taxes are only deductible if you itemize on your federal tax return.
And to add insult to injury, the Tax Cuts and Jobs Act (TCJA) in 2017 increased the standard deduction making it more advantageous for people to claim the standard deduction than to itemize. And there goes the opportunity to deduct those state and local taxes.
While federal income taxes paid are not deductible on federal tax returns, taxpayers may deduct other taxes, such as property taxes or specific business-related taxes. Because any time you can claim a tax deduction, it effectively reduces your tax liability. And that’s a win! In which case you may be thankful for your own tax giving. However, don’t expect a letter of gratitude for your tax giving from the government!
But in this season of thanksgiving, let’s consider being thankful that we need to file a tax return. Because as our first President, George Washington said in his farewell address, “to have revenue there must be taxes”. So when you have revenue aka income, you have to (you get to) pay taxes and thereby contribute to the greater good! Yay, you!
While tax giving does not feel as altruistic as intended, you most certainly don’t need to be giving more tax than necessary. And the best way to circumvent over giving taxes is with effective tax planning. When you minimize your tax giving, you will definitely give thanks! For more information on tax preparation, planning and even tax problems, check out www.saunderstax.com/taxservices.php .
Saunders Tax & Accounting which is open Monday through Thursday from 9 am to 5 pm and is available online at www.SaundersTax.com. Awarded the Hagerstown Chamber of Commerce “2023 Small Business of the Year”, we have been providing a Less Taxing Life and More Prosperous Solutions since 1984!