Federal 1040 Income Tax - "Sales Tax Deduction" - South Dakota Domicile

[Smitty77_7]

(Was not sure where to post this, so posted it here:)! 

As our taxes have become less complex, I'm taking them over from our CPA. As I'm trying to remember how to swim, I mean use Turbo Tax again, I admit I've got myself confused. 

- Our South Dakota Domicile, out of Americas Mailbox in Box Elder, is our addressed used for all business and dealings, including out Income Taxes

- I went to enter the default Sales Tax Deduction based upon income. And it specifically says 'States Lived In'. And the amount of time, and the areas Sales Tax Percentage

- Looking at how our CPA has done this. He does the full year from South Dakota (Pennington County, 4.2% Sales Tax)

- We usually travel 8-9 months a year, and then spend 3-4 months in a second home in California

-  In 2023 we spent time in 10 different states, and in some states, multiple counties with differing sales taxes

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My CPA is currently not available to close the loop back on this. But on doing some research, I've found that many just file their Federal and State Taxes, based upon where they are Domiciled. (In our case, no State Taxes for South Dakota.) And, they use their Domicile Address location as their full years of Sales Tax Calculation for the Deduction

The input was that their Domicile best represented them. Vs all of the multiple states they've 'traveled/visited' within. 

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I came to the Escapees Forum for input/thoughts on this, as frankly I received more help/input when prepping for retirement 12 or so years ago, from the members of the Escapees Forum - then from any other source. 

Obviously, I value the Forum Members input. 

TIA for any thoughts, and best to all,

Smitty 

 

 

[Kirk W]

Are you sure that you would not be better off to take the standard deduction and forget about trying to track sales tax? I have found Turbo Tax very easy to use. Unless you have an unusually complicated situation for someone retired, it really is unusual for it to save money by filing long form. This year we had two 1099's from SS, another from my 401k, another from my pension plan, yet another from my non tax sheltered investments, and a W2 from a part-time job. While it took just a little more time, it was not difficult at all, mostly the uploading of the documents in pdf format. 

The 2023 standard deduction is $13,850 for single filers and those married filing separately, $27,700 for those married filing jointly, and $20,800 for heads of household.  You will need to have enough deductions to total more than you standard deduction in order to save anything from the long form. 

Edited March 4 by Kirk W
add a thought

[Smitty77_7]

Thanks Kirk - Yes, Schedule A really does help us above the Standard Deduction:)! Sales Taxes paid, is one portion of this. 

Just got an email from an acquaintance out of Florida. He said he asked the person doing their taxes about this - said he uses the state of Domicile for this calculation. As Living vs a Transient Visit, are different. 

I'll wait for some more thoughts/input, and then probably call the IRS for their input too. (12 years, and this has never come up, so I'm probably making more out of it then I should be...).

Smitty 

 

[Kirk W]

If you calculate your estimated sales tax at a 4.2% tax rate, you would need to have paid that sales tax on $23,810 to deduct $1000 or if you expect a deduction of $5,000 the purchase total would be roughly $120,000 in sales taxed purchases. 

Edited March 4 by Kirk W
typo

[Smitty77_7]

Thanks again Kirk... I was rather generalizing in my last post. Box Elder, has an additional 2% Sales Tax. We did not have any big ticket items this year. So the Sales Tax Deduction calculation is based upon a combo of incomes, and does some magic to spit out the Sales Taxes. One at 4.2% and the other 2%. 

So we either need to go and input our full 2023 travel of Dates and Locations thru the various states. Or, default based upon Domicile of Box Elder, South Dakota... 

Our CPA has done the Domicile address for the last 4 years (Maybe more, as the other older folders are in storage...). 

It was the Turbo Tax Prompting, that and wording of Lived In, that prompted my noodle rubbing:)! 

Smitty 

 

[sandsys]

5 hours ago, Smitty77_7 said:

The input was that their Domicile best represented them. Vs all of the multiple states they've 'traveled/visited' within. 

Yup. I never felt I "lived" in the states we visited while full time RVing no matter how long we visited them. We never changed our driver's licenses, vehicle registrations, nor voting registration to any of those states, either. Nor did we let them count us as residents of the states we visited at the time of the 2010 census. Our domicile was South Dakota so that's where we did all those things.

Linda Sand

[Dutch_12078]

Thought I would add this for those looking to TurboTax or H&R Block for advice:

TurboTax Adds AI That Gives Horribly Wrong Answers to Tax Questions

https://ca.news.yahoo.com/turbotax-adds-ai-gives-horribly-171059895.html

Edited March 5 by Dutch_12078
add info

[trailertraveler]

Like many states, South Dakota has a sales/use tax on purchases of taxable items made out of state or by mail order/internet by South Dakota residents. There are likely provisions for taxes paid to other states/jurisdictions to prevent double taxation. I would think that the number used on your federal tax return would be the amount of your South Dakota Use Tax Return plus the tax collected on any mail order/internet purchases paid to South Dakota.

[Kirk W]

The IRS really doesn't care where you "felt that you lived," only what you actually paid in sales taxes and the total of all deductions still needs to exceed the standard deduction for it to matter. With no mortgage interest or much else, it has been a long time since we came very close to exceeding our standard deduction. I'm always amazed in reading income tax related threads how many people pay someone to do individual income taxes when it is so easy by using one of the many tax calculation programs available. This link is from the IRS website.

Use the Sales Tax Deduction Calculator

[Smitty77_7]

My CPA did respond to my email (He's out of the loop to to family matters.). He said he'd had more experience with Domicile for the Boating vs RV'ing Community. He said he'd usually asked his clients if they wanted to provide him dates and locations for the year, to enter into where they were for calculations of proration of AGI Sales Tax by location. (For example San Diego, has higher sales tax then Box Elder. Oregon has no Sales Tax, etc.) He said maybe 4 clients over the years had actually did this. And he did not ask me, because I'd been using the default (I'll say KISS:)!) calculation of our then San Diego Zip Code, when we first asked him to help us as we shifted from our working careers - into Full Time RV'ing. 

So, I'm going to continue to use the Box Elder ZIP for the full year.

A few more bits of info sharing:

> One size does not fit all with shoes. And taxes can be more complex for some then others. We had our careers incomes, rental incomes, investments in the market and, we had some independent consultant gigs on top of our 9-5 jobs too. 

> I did do our taxes for most of our married life. One condition from my Dear Wife, as we transitioned into retirement, was that in case something were to happen to me. She wanted a Financial Advisor and a CPA to assist her with our investments and taxes. It was a negotiated condition of agreement between us (  ), before she would agree that it was OK for us to 'retire'. (And now that we've a relationship with this younger CPA, she feels comfortable that if something keeps me from handling our taxes - she has a contact to fall back on.)

> While I've used the AGI Income amount for the majority of our taxes filed over the years. We did have two years where the actual purchase, in San Diego Sales Tax Rate, of two coaches over the years. And one of those years, we also bought a new car too.)  So when the Sales Tax of actuals was higher then the AGI Income amounts calculation - I would obviously go with the one that yielded us the highest deduction.

> On Dutch's Article on AI not yet ready for prime time. For the early years of our married life, I used pencil/pen and paper and manually filled out out year Fed/State taxes. I did shift to Turbo Tax (Costco DVD when on Sale) for many years before retiring. A few things I've noted about Intuits Turbo Tax over the years are: The make changes to format and inputting of data, seemingly yearly; They've seemed to spend more in improvements on marketing while using Turbo Tax, to buy other levels and services, then they have on improvements of ease of use functionality and navigation. 

Sure, the buzzword of this decades seems to be when Skynet First Became Self Aware, AI!!! But Turbo Tax was no different then many other software providers, having online prompts and responses available for many years. 

And as with other software packages too, AI's usage have varying degrees of successes and failures. I give Intuit a solid B grade, for their attempt to expand AI's usage within their Online prompts and responses. I however, still give Intuits Turbo Tax Online Help, a C- grade at best. (I'm sure it will improve over the years ahead, as AI certainly is no longer 'dependent' upon the software developers and coders...  It is a new frontier.)

For now. ANY AI PROMPTS OR RESPONSE, my wife and I receive from any application - is to be questioned, and frankly suspect - until validated for accuracy... 

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Long winded as usual. And my Dear Wife suggested I let Turbo Taxes Prompting Software, to sidetrack and confuse me... (I told her probably because in today's world, I need more RAM between the ears, and some of what I have has signs of demise:)!)

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Still waiting for some 1099's from New York Life, actual will replace the preliminary by 3/15, was the last update I received. And then we can wrap up this years taxes!

My thanks and best to all,

Smitty

(I do not post much now, but drop in monthly... And by then, most of the requests for input or help have already been responded to...)

 

[jblo]

While not as complicated as yours may be--we are full-time Tx domiciled, and have SS/pension income, along with some consulting income yearly. I used to save every receipt and take the sales tax off them and add them up. We are fortunate to not have large medical expense. Sometimes, a large purchase (fiver, then MH) and interest on loan all added together would come close to the standard deduction. Then, the deduction rose faster than expenses (imagine that!) and it was a waste of time to keep all that paper. Now, soon as forms arrive, its done in 2 days using TurboTax. Hope you got it figured out by tomorrow...

Edited April 14 by jblo

[Kirk W]

13 hours ago, jblo said:

Now, soon as forms arrive, its done in 2 days using TurboTax.

We have 2 social security 1099's, my pension 1099, my 401k(RMD) 1099, 2 investment fund 1099's, and the last 2 years a W2 from my part-time job. I too use TurboTax and mine took me about 2 hours to do, mostly a matter of collecting the documents and scanning the paper ones. I usually have it ready to submit as soon as the IRS begins to accept electronic returns (this year Jan. 29) but this year I was almost a week later ad the last 1099 wasn't yet available. They have until the end of February to send them out but most of ours arrive before the end of January. Since we lived in WY for 18 years and have now been TX residents for 35 years, we have not files a state return in many years, which can complicate things. 

I have been doing our taxes on the computer since 1990 and have used both Turbo Tax and H&R Block software. Lately I have stayed with TurboTax for several reasons but either one is very easy to use and there are a host of others as well. Many retired people are eligible for free filing from the IRS as well if they are willing to do it themselves. The average fee for preparing Form 1040 with Schedule A to itemize personal deductions, and a state income tax return, was a flat fee of $323. The average fee for Form 1040 with the standard deduction, plus a state income tax return, was $220, according to Investopedia. Depending on which one a person chooses and what version of the program, tax software will usually cost between $50-100 and possibly as much as $150 for a business version.