(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?
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.)
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 . . ."
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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.
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 rem> (1) The instructions, page A-4, say
The question here is not about the tax rate, but about what portion of income the tax rate gets applied to.
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.
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?
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.
No, he didn't. For some reason, he habitually deletes attribution lines so that it's no longer clear who said what. The next two lines were written by me, and the three lines after that were written by him in response to those two lines by me.
Thanks, Stuart. There's no difficulty in my mind about entering the QCD on form 1040.
The question was about whether it should be included in "nontaxable income" in the IRS's sales tax deduction calculator at <irs.gov/SalesTax>.
No one has yet provided any information about how the sales tax calculator works, but I presume that a larger amount of nontaxable income (by including the QCD) will result in a larger sales tax deduction. I don't want to claim more or less in sales tax than I'm entitled to.
P.S. It's clear that the IRS calculator does not just apply your state and local sales tax rate to your income. My state and local rate in 2023 totaled just over 8%, but the sales tax amount the calculator gave me was _way_ below both 8% of the taxable income and
8% of the nontaxable income that I had entered in the calculator. I sure would like to know how the calculator decided how much of those incomes to use in calculating the tax.
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