10 Creative (But Legal) Tax Deductions

Sales Taxes

First things first: Do you have a time machine? No? Sorry, then this first tip is completely useless to you. For a short window in 2009, the federal government allowed taxpayers to deduct state sales tax paid on the purchase of a new car or truck as part of the American Recovery and Reinvestment Act. Unfortunately, the latest you could claim the deduction on a car purchased in 2009 was December 31, 2011. But keep your eyes peeled for another stimulus package!

Returning to modern times, you can still deduct certain vehicle-related taxes. For example, many states charge an annual registration fee for your car, truck, motorcycle, motor home or boat. This registration fee is really an extension of a sales tax, which is deductible as a personal property tax [source: Barton and IRS].

The Internal Revenue Service (IRS) allows you to deduct state and local income taxes from your adjusted gross income during the same tax year. So if you pay $1,000 in state and local taxes in April 2009 for income earned in 2008, you can deduct $1,000 from your 2009 federal income taxes. But what if you live in a state like Florida, Texas or Washington that don't collect state or local income taxes? The IRS gives these taxpayers -- all taxpayers, really -- the option of deducting state sales taxes instead. The IRS offers a handy sales tax calculator for estimating your deduction, but you can take even larger deductions if you buy a boat, plane or an airplane [source: McCormally].

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