J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

16.3 State and Local Income Taxes or General Sales Taxes

If you paid state and local income taxes during 2012, you may deduct them on Schedule A (Form 1040). It may be more advantageous for you to deduct state and local general sales taxes that you paid during the year, but whether that option will be available for 2012 depends on Congress. The law that authorized the option to deduct state and local general sales taxes in lieu of state and local income taxes expired at the end of 2012, and although an extension of the sales tax option to 2012 is expected, Congress had not yet enacted the extension legislation when this book went to press.

If the legislation is enacted, the election to deduct state and local general sales taxes for 2012 will be made by checking a box on Line 5 of Schedule A (Form 1040). Check the e-Supplement at jklasser.com for a legislation update.

State and local income taxes.

You may deduct on your 2012 return state and local income taxes withheld from your pay and estimated state and local taxes paid in 2012. Also deduct the balance of your 2011 state and local taxes you paid during 2012. If in 2013 you pay additional state income tax on your 2012 income, that payment will be deductible on your 2013 tax return.

State income taxes may be claimed only as itemized deductions, even if attributed solely to business income. That is, state income taxes may not be deducted as business expenses from gross income.

To increase your itemized deductions on your 2012 return, ...