Writing off Sales Tax on State Return

[erchess]

Client who is selfemployed in NC has contact who is selfemployed in SC and reports that he writes off the sales tax he pays on his state return. Does anyone who does SC returns know anything about that? My client thinks he used to do that on his self prepared NC taxes but it went away long before he started coming to me but he wanted me to check on it. Does anyone remember writing off sales taxes paid by self employed people in NC?

I always include sales and other taxes in the price when I depreciate or just write off an expense so I don't see how the taxes could yield any more savings.

[ChEAr$]

Client who is selfemployed in NC has contact who is selfemployed in SC and reports that he writes off the sales tax he pays on his state return. Does anyone who does SC returns know anything about that? My client thinks he used to do that on his self prepared NC taxes but it went away long before he started coming to me but he wanted me to check on it. Does anyone remember writing off sales taxes paid by self employed people in NC?

I always include sales and other taxes in the price when I depreciate or just write off an expense so I don't see how the taxes could yield any more savings.

Assuming the sales taxes paid are business related, yes; on schedule c, but not as a separate item as you've alluded to already.

[JohnH]

Maybe the SC guy's accountant isincluding sales tax collections in revenue and then deducting it, rather than netting it out against revenue. I've seen it done both ways.

[ChEAr$]

Maybe the SC guy's accountant isincluding sales tax collections in revenue and then deducting it, rather than netting it out against revenue. I've seen it done both ways.

I think Ed was talking about sales tax paid rather than sales taxes collected.

[taxea]

If it is a business it is a business expense but most of the time businesses report the total expense including the sales tax rather than taking the time to separate it from each invoice.

[FEDUKE404]

Unlikely but you never know!

Client who is selfemployed in NC has contact who is selfemployed in SC and reports that he writes off the sales tax he pays on his state return. Does anyone who does SC returns know anything about that? My client thinks he used to do that on his self prepared NC taxes but it went away long before he started coming to me but he wanted me to check on it. Does anyone remember writing off sales taxes paid by self employed people in NC?

I always include sales and other taxes in the price when I depreciate or just write off an expense so I don't see how the taxes could yield any more savings.

You need to clarify between sales tax paid (as part of business income, remitted to state agency) and sales tax collected (on sale of items). If this is all done within a Schedule C, it should be a wash with "collected" in income and "remitted to state" in expenses. Of course, this would be based upon the assumption that the Sch C business actually did charge/collect the sales tax at the time of sale.

But if this client somehow "writes off" something related to sales tax from a Schedule C business on his personal Schedule A, that would not be doable.

To somewhat answer your question further: Back in the dark ages (before computers) NC would allow all business (to include employee) and investment expenses (think intangibles tax!) to be treated as an adjustment to state income. Tax returns could be quite challenging for those with such expenses. Once the NCDOR came to their senses and "started" with the fed numbers, that issue went away. Perhaps that is where some confusion is originating???

Good luck - remember you are dealing with SC "logic" !!

FE

[erchess]

TY For All Responses

Client is a self employed insurance agent. I think one company may treat him as a statutory employee but I'm not sure and for sure the others treat him as a contractor. He does not personally collect sales tax although there may be tax included in the checks he collects and sends to the insurance companies which then remit commissions to him. I don't know anything about the contact in SC. My client definitely is talking about tax paid on items bought for the business.

[FEDUKE404]

Interesting situation / confusion

Client is a self employed insurance agent. I think one company may treat him as a statutory employee but I'm not sure and for sure the others treat him as a contractor. He does not personally collect sales tax although there may be tax included in the checks he collects and sends to the insurance companies which then remit commissions to him. I don't know anything about the contact in SC. My client definitely is talking about tax paid on items bought for the business.

I cannot imagine in any way, shape, or form how an "insurance agent" would even remotely be involved in sales tax payments related to the services he provides.

My guess is someone is getting greatly confused about self-employment/Schedule SE taxes instead....

And if he is referring to "tax paid on items bought for the business" the sales tax should already be included in the (deductible) cost for those items. Unless he is trying to double-dip by somehow including those sales taxes again on his Schedule A.

FE

[erchess]

Not on Federal

His SC contact claims to deduct sales tax on the SC return not Federal. He's believing that this occurs and wishing he could do likewise on his NC return. As OP and another post alluded, this may have been possible before NC changed so that the State Return begins with Federal Taxable Income. Does anyone know how SC works in this regard? It's been so long since I did a SC return that I don't remember.

[Roberts]

His SC contact claims to deduct sales tax on the SC return not Federal. He's believing that this occurs and wishing he could do likewise on his NC return. As OP and another post alluded, this may have been possible before NC changed so that the State Return begins with Federal Taxable Income. Does anyone know how SC works in this regard? It's been so long since I did a SC return that I don't remember.

Don't know about SC but in my state, you can choose to deduct sales tax OR state income tax. You can't deduct both. 99% choose to deduct income tax because it's easiest and it's hard to document sales tax for everything you've purchased.

I had a new client come in and they were deducting sales tax. Figured out they were deducting 15% of their income as sales tax paid but the state sales tax is about 5%. The accountant told me he uses that percentage for everyone.

[Burke]

His SC contact claims to deduct sales tax on the SC return not Federal. He's believing that this occurs and wishing he could do likewise on his NC return. As OP and another post alluded, this may have been possible before NC changed so that the State Return begins with Federal Taxable Income. Does anyone know how SC works in this regard? It's been so long since I did a SC return that I don't remember.

SC starts with federal taxable income. "Additions, Page 2, SC 1040: State tax add back. If state and local income tax or general sales tax was deducted on federal Sche A, add all (or a part) back for SC purposes." Therefore, neither state, local income tax nor general sales taxes are permitted on the SC return, except to the extent of the add-back calculation worksheet based on the standard deduction. TTB-All States: page SC-3.

This would apply to personal taxes on Sche A. Sales taxes paid on purchases for the business would be deducted on Sche C included in with the purchase price of the item(s), for which there is no further deduction on SC 1040.

[FEDUKE404]

Sales tax adjustment in SC

SC starts with federal taxable income. "Additions, Page 2, SC 1040: State tax add back. If state and local income tax or general sales tax was deducted on federal Sche A, add all (or a part) back for SC purposes." Therefore, neither state, local income tax nor general sales taxes are permitted on the SC return, except to the extent of the add-back calculation worksheet based on the standard deduction. TTB-All States: page SC-3.

This would apply to personal taxes on Sche A. Sales taxes paid on purchases for the business would be deducted on Sche C included in with the purchase price of the item(s), for which there is no further deduction on SC 1040.

I concur.

Earlier today I took a quick look at the SC return. As noted, apparently SC requires an add-back for any "state taxes" deducted on the Form 1040. Regardless of whether the taxpayer used the "real" amount or the "table" amount, there will need to be an adjustment on that line. I guess, reading between the lines, about all that is left for SC is real/personal property tax?

The OP was apparently related to sales tax and business expenses. Obviously any such tax paid for any business assets should stay within the Sch C or perhaps Form 2106.

It would be nice if an experienced SC tax professional could offer us some more guidance on this topic.

I got a chuckle from the "accountant" who was deductiong 15% of income as a valid sales tax deduction on Sch A. His client audits should be quite stimulating!

FE

[JohnH]

Maybe the SC resident was looking at the add-back adjustment for income tax/sales tax and just thought it was a deduction.

When clients start bugging me about what someone else is doimg and it doesnt make sense to me, I usually tell thm I don't have any way to discuss it without seeing the other guy's return. Give some people a chance and they'll have you chasing rabbits all over the place.

[Burke]

Regardless of whether the taxpayer used the "real" amount or the "table" amount, there will need to be an adjustment on that line. I guess, reading between the lines, about all that is left for SC is real/personal property tax?

Since SC starts with federal taxable income, the return is effectively allowing all itemized deductions on Sche A with the exception of state and local income taxes and/or general sales taxes (which have to be added back.) In other states, general sales taxes may be allowed, but most all states refuse to allow state & local income tax as a deduction on their returns.