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Hello and thanks you for using Just Answer. State and local income taxes are deductible on Schedule A in the year paid. You must file an amended tax return to deduct state taxes paid in 2007. Deducting your sale tax will not reduced your AGI for EIC.
You have the option of claiming an itemized deduction on Schedule A for either (1) general state and local sales taxes or (2) state and local income taxes. Under the sales tax deduction option,taxpayers can deduct either:
1 Actual sales tax amounts (based on their records)
2 Predetermined deduction figures from IRS tables. Sales Tax Deduction Calculator can be found at www.irs.gov
Yes, I understand I can deduct the sales tax amount paid instead of the standard deduction, but I purchased my vehicle in 2007 and did not claim the sales tax. Can I claim it for 2008?
You can only deduct sales taxes in the year paid. Deducting state income or sale tax will not reduce your AGI for EIC purposes. Amount enter on Form 1040 line 10 is never a negative number. The amount enter on line 10 is the taxpayer's state income tax refund received in the prior year if the taxpayer itemized and deducted state and sale tax in the prior year.
okay, then can I use the EIC that I did not realize I could claim in 2007, this year for 2008 tax reporting? Will this reduce my AGI?
If you qualify to received EIC in 2007 you must file a amended tax return to receive the credit. You can only use income earned in 2008 to qualify for the EIC.
There are very few deductions that can reduce your AGI for EIC purposes. Business losses, capital gain losses ( up to $3,000 loss) can reduce AGI for EIC purposes.