Optional general sales tax on Schedule A

[Stan Brown]

(1) The instructions, page A-4, say
"Your 2023 income [for purposes of the optional sales tax tables] is
the amount shown on your Form 1040 or 1040-SR, line 11, plus any
nontaxable items, such as ... Nontaxable part of IRA, pension,
or annuity distributions. Don't include rollovers."
The sales tax calculator <irs.gov/SalesTax> has similar language.

Qualified Charitable Distributions are nontaxable IRA distributions.
Should I include them as income for the calculator or the tables?

(2) Separate question but related: Based on a trial run with the
calculator, I see that the calculator does not apply the sales tax
rate (8% last year, in my case) to total income but only to a
fraction of income. Does anyone know whether it is a fixed percentage
or variable with income, and how it is determined?

--
Stan Brown, Tehachapi, California, USA https://BrownMath.com/
Shikata ga nai...

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[Bob Sandler]

>(2) Separate question but related: Based on a trial run with the
>calculator, I see that the calculator does not apply the sales tax
>rate (8% last year, in my case) to total income but only to a
>fraction of income. Does anyone know whether it is a fixed percentage
>or variable with income, and how it is determined?

It is not a fixed percentage. It uses the state sales tax
tables in the Schedule A instructions, pages A-13 - A-16,
for the state you are in. The tables are in steps or
brackets. For example, the amount of sales tax is the same
for any income amount from $60,000 to $69,999.

Bob Sandler

[Stan Brown]

On Mon, 19 Feb 2024 18:15:59 EST, Bob Sandler wrote:
>
> >(2) Separate question but related: Based on a trial run with the
> >calculator, I see that the calculator does not apply the sales tax
> >rate (8% last year, in my case) to total income but only to a
> >fraction of income. Does anyone know whether it is a fixed percentage
> >or variable with income, and how it is determined?
>
> It is not a fixed percentage. It uses the state sales tax
> tables in the Schedule A instructions, pages A-13 - A-16,
> for the state you are in. The tables are in steps or
> brackets. For example, the amount of sales tax is the same
> for any income amount from $60,000 to $69,999.

Thanks, Bob. But I don't think it uses the tables, or at least not
only the tables. When I used the calculator, it gave me a deduction
of $x,xxx.36, but the tables are in whole dollars.

Presumably there's some kind of formula, and the tables round the
result to whole dollars but the calculator only to the nearest penny.
I'm trying to find the formula, so that I can put it into the
spreadsheet I use to track my projected total tax during the year, so
that I can make adequate estimated payments each quarter. (Yes, I
know that there's a $1,000 margin of error, but I like to be as
accurate as possible.)

--
Stan Brown, Tehachapi, California, USA https://BrownMath.com/
Shikata ga nai...

[Bob Sandler]

>Thanks, Bob. But I don't think it uses the tables, or at least not
>only the tables. When I used the calculator, it gave me a deduction
>of $x,xxx.36, but the tables are in whole dollars.
>
>Presumably there's some kind of formula, and the tables round the
>result to whole dollars but the calculator only to the nearest penny.

>I'm trying to find the formula . . .

It is probably calculating an adjustment because the local
tax rate in Tehachapi is higher than the minimum local tax
rate that is built into the table. See Note 3 in the box at
the bottom of page A-16 in the instructions. You would have
to use the worksheet on page A-5 and see the instructions
for line 3 of the worksheet on page A-6.

While digging into this, I ran across an article in the
Tehachapi News saying that the tax rate was going to
increase on April 1, 2023. If that happened, the calculator
is probably doing an apportionment to account for the
mid-year increase. I assume it would be similar to what you
would do if you moved to a different city during the year.
See "What if you lived in more than one locality in the same
state during 2023?" in the middle column on page A-6. You
would have to do separate worksheets for the first 3 months
and the last 9 months.

"Currently, the sales tax rate within the city of Tehachapi
is 7.25 percent but it will increase to 8.25 percent on
April 1, 2023 . . ."
https://www.tehachapinews.com/news/article_c0651a62-8331-11ed-ae47-63de4e16fc48.html

My earlier post was based on testing the calculator using my
own state, which has a uniform state-wide sales tax rate,
and no local sales taxes.

Bob Sandler

[Stan Brown]

> It is probably calculating an adjustment because the local
> tax rate in Tehachapi is higher than the minimum local tax
> rate that is built into the table. See Note 3 in the box at
> the bottom of page A-16 in the instructions. You would have
> to use the worksheet on page A-5 and see the instructions
> for line 3 of the worksheet on page A-6.

Yes, the tax rate in Tehachapi as well as unincorporated Kern County
rose to 8.25% from 7.25% on 2023-04-01. The IRS sales tax calculator,
in its summary page, quoted a rate of 7.2500% + 0.7534%, the latter
figure being a pro rating of the 1% increase over 295/365ths of the
year. Thus the effective rate last year was 8.0034%, taking into
account the partial-year increase. In my initial query I rounded that
to 8% for simplicity's sake.

I had no issue with the tax rate, and I've snipped your discussion.

As a reminder, here again are the two questions I asked originally.
I'd be grateful for answer from you or anyone to these questions.

On Mon, 19 Feb 2024 14:52:04 EST, Stan Brown wrote:
> (1) The instructions, page A-4, say
> "Your 2023 income [for purposes of the optional sales tax tables] is
> the amount shown on your Form 1040 or 1040-SR, line 11, plus any
> nontaxable items, such as ... Nontaxable part of IRA, pension,
> or annuity distributions. Don't include rollovers."
> The sales tax calculator <irs.gov/SalesTax> has similar language.
>
> Qualified Charitable Distributions are nontaxable IRA distributions.
> Should I include them as income for the calculator or the tables?
>

> (2) Separate question but related: Based on a trial run with the
> calculator, I see that the calculator does not apply the sales tax
> rate (8% last year, in my case) to total income but only to a
> fraction of income. Does anyone know whether it is a fixed percentage
> or variable with income, and how it is determined?

The question here is not about the tax rate, but about what portion
of income the tax rate gets applied to.

--
Stan Brown, Tehachapi, California, USA https://BrownMath.com/
Shikata ga nai...

[Bob Sandler]

>As a reminder, here again are the two questions I asked originally.
>I'd be grateful for answer from you or anyone to these questions.
>
>On Mon, 19 Feb 2024 14:52:04 EST, Stan Brown wrote:
>> (1) The instructions, page A-4, say
>> "Your 2023 income [for purposes of the optional sales tax tables] is
>> the amount shown on your Form 1040 or 1040-SR, line 11, plus any
>> nontaxable items, such as ... Nontaxable part of IRA, pension,
>> or annuity distributions. Don't include rollovers."
>> The sales tax calculator <irs.gov/SalesTax> has similar language.
>>
>> Qualified Charitable Distributions are nontaxable IRA distributions.
>> Should I include them as income for the calculator or the tables?

That's an interesting question. I haven't responded to that
because I don't know the answer. I was hoping someone else
would respond who knows the answer.

>> (2) Separate question but related: Based on a trial run with the
>> calculator, I see that the calculator does not apply the sales tax
>> rate (8% last year, in my case) to total income but only to a
>> fraction of income. Does anyone know whether it is a fixed percentage
>> or variable with income, and how it is determined?
>
>The question here is not about the tax rate, but about what portion
>of income the tax rate gets applied to.

The calculator does not apply the sales tax rate to any
specific fraction of income. It just doesn't work that way.
You are resisting using the table in the instructions, but
the calculator uses the table, not a formula. Built into the
table is an assumption about how much of your income is used
to make purchases that are subject to sales tax. I don't
know precisely how they determine that, but that assumption
is not based on a formula. It's based on what items are
subject to sales tax in each state, and studies of what
people buy. It will be different in each state. What people
buy will vary with income, but it's probably based on
surveys and studies, not a formula.

For local tax, if you work through the worksheet for local
tax on page A-5 of the instructions you will see that (at
least for California) it calculates the ratio of the local
tax rate to the state tax rate. Then it applies that ratio
to THE SALES TAX FROM THE TABLE, not to an amount of income.
That's also what the calculator does. There is no getting
away from using the table.

Furthermore, you cannot escape the fact that the table does
not rely on the exact amount of income. It works in large
steps. For example, experiment with the calculator using the
following inputs.

Tax year 2023
Single, no dependents, no large purchases
AGI - see below, no nontaxable income
ZIP code 93501, Tehachapi

With those parameters, for any AGI from $50,000 to $59,999
the sales tax will be $1,018.92, so the calculator is
obviously not applying a tax rate to any specific fraction
of income. For AGI of $60,000 the sales tax will be
$1,087.36. That's $68.44 sales tax on an additional $1 of
income. That's not just rounding to whole dollars.

It seems to me that finding a formula is not your real goal.
Your real goal is to make your spreadsheet calculate the
sales tax deduction. Couldn't you incorporate the table for
California into your spreadsheet, and have the spreadsheet
look up the sales tax deduction in the table (with
appropriate adjustment for local tax)?

I also can't help wondering why the sales tax deduction is
of any significance to you in notoriously high-tax
California. I'm sure that for most people in California,
their state income tax is much more than the sales tax, so
they never deduct sales tax. Is your situation such that
your state income tax is very low?

Bob Sandler

[Stan Brown]

On Tue, 20 Feb 2024 22:28:45 EST, someone wrote:
> The calculator does not apply the sales tax rate to any
> specific fraction of income. It just doesn't work that way.

Sorry, but you're just wrong, possibly aside from the
word "specific".

The calculator at irs.gov/SalesTax said my sales tax
was X. A tax of X corresponds to X/0.080034 in
purchases, based on the blended rate 8.0034% shown by
the calculator. My income as entered in the calculator
was quite different from that figure. Therefore the
calculator must not apply the tax rate to the total
income entered. In other words, whoever programmed the
calculator did so on the basis that not all the income
was spent on taxable items.

The question is how the calculator decides what portion
of income it will count as spent on taxable items.

I have already explained why the sales tax tables are
not relevant here, and have already pointed out that
the calculator gives an answer that is not in whole
dollars and therefore does not appear in the sales tax
table.

--
Stan Brown, Tehachapi, California, USA
https://BrownMath.com/
Shikata ga nai...

[Stuart O. Bronstein]

Bob Sandler <bob_u...@yahoo.com> wrote in
news:5oqatihlf13auir0q...@4ax.com:

>>> Qualified Charitable Distributions are nontaxable IRA distributions.
>>> Should I include them as income for the calculator or the tables?
>
> That's an interesting question. I haven't responded to that
> because I don't know the answer. I was hoping someone else
> would respond who knows the answer.

Here's what the IRS says:

"Like other IRA distributions, QCDs are reported on Line 4 of Form 1040
or Form 1040-SR. If part or all of an IRA distribution is a QCD, enter
the total amount of the IRA distribution on Line 4a. This is the amount
shown in Box 1 on Form 1099-R.

"Then, if the full amount of the distribution is a QCD, enter 0 on Line
4b. If only part of it is a QCD, the remaining taxable portion is
normally entered on Line 4b.

"Either way, be sure to enter "QCD" next to Line 4b. Further details will
be in the instructions to the 2023 Form 1040."

https://www.irs.gov/newsroom/qualified-charitable-distributions-allow-
eligible-ira-owners-up-to-100000-in-tax-free-gifts-to-charity#:
~:text=Like%20other%20IRA%20distributions%2C%20QCDs,enter%200%20on%
20Line%204b.

--
Stu
http://DownToEarthLawyer.com