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Taxpayers who itemize get another chance to choose between deducting their state income taxes or their state sales taxes on their federal return this year. Congress extended the either-or-state-tax break, which had expired last year, for two more years through 2009.
If you plan to deduct your sales taxes, buying a big-ticket item such as a car or a boat before the end of the year can substantially boost your deduction. . And with the massive drop-off in car sales, you can find bargains galore -- assuming you have the cash or can get a car loan.
For most taxpayers, the state income tax provides a larger deduction. But for residents of states that don't have an income tax, such as Texas or Florida, the sales-tax deduction is an easy choice.
You can save your receipts or use the IRS's state-specific tables to estimate your sales tax based on your family's size and income. In either case, you can add the sales tax for major purchases such as a car or boat to boost your tally.
As part of the same legislation, Congress also extended two other popular tax breaks that expired last year. Teachers and aides can deduct up to $250 of out-of-pocket expenses for classroom supplies, regardless of whether they itemize their deductions. And some families with incomes too high to claim the Hope or Lifetime Learning tax credits can deduct up to $4,000 in college expenses. Both tax breaks were extended through 2009.
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