Sale tax deduction or paid

[JON]

which way to go. If I use actual state tax paid the resulting Alt Min is around $9,000, if I change it to sales tax deduction the taxes woed state and federal stay exactly the same the alt min tax goes down to $154. If you are going to get a refund on your state is there any other reason to use the sales tax deduction (assuming it is smaller). The credit carryforward does not change that much. He has been in alt min in previous years. Yes, this is a new client and the same one with the other thread about director fees>>>>

[Brad Imsdahl]

Why does it matter for AMT? Either way, you have to add back taxes deducted on Schedule A for AMT purposes, even the sales tax deduction.

[JON]

You are

right. So when would it be an advantage to use a sales tax deduction that is SMALLER than the state income taxes paid. Ultra Tax provides this alert when in alt min to try sales tax deduction. If it is a smaller deduction it can decrease the amount of alt min tax, but in my case the net tax is the same with the larger state taxes as it is with the smaller sales tax deduction. Is it because I am in the 28% bracket for regular and alt min?

[Brad Imsdahl]

When a taxpayer is at a point where AMT kicks in regardless of whether you deduct state income tax or state sales tax on Schedule A, there could be an opportunity to lower regular tax the following year.

Since both state sales tax and state income tax is an add back for AMT, the tax liability on the 1040 will be identical either way. By choosing the smaller sales tax deduction for regular tax purposes, none of the state income tax refund would be taxable on the 1040 the following year for regular tax purposes.

Maybe that is what they mean.