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Tax laws rules and regulation are not set in stones

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Introduction Tax laws rules and regulations change mostly every year and people in the business need to keep up with the fast pace of those changes. Usually, when congress wants to set a rule, they start by issuing it for a limited set of time. The latest try out of congress is section 164 (b) (5), which gives taxpayers who elect to itemized their deductions an option to take their state and local general sales taxes, in lieu of state and local income taxes. As the law is expiring in December 2005, congress needs to decide whether the law should be extended or not. The purpose of this paper is to present an argument against extending section 164 (b) (5). Whose entitle to explore that option? Proponents of extending section 164 (b) (5) contends that this is a benefit for taxpayers because they have an option to take what benefit them the most: state and local general sales tax deduction or take their state and local income tax deduction. We on the other hand, opponents of extending it, believe that even though it looks like a benefit, we should also take into account whether or not taxpayers is going to take advantage of this so called "choice". As pointed out earlier, only people who are taking an itemized deduction could be entitled to choose among state and general sales taxes or state and local income taxes, which means that people who elect to use the standard deduction will not going to be affected by that law. ...read more.


We also have to keep in mind that low-income taxpayers are usually the "everyday-spenders" of necessities such as food and clothing. We can only imagine the burden that they have to undertake if they tried to save all their receipts and calculate themselves their total cost of sales tax expense at year end (Again, what's the use of saving the receipts and calculating the cost if they're not going to itemize anyway?). In addition, the optional sales tax table does not exactly present the best estimation of sales tax expense. Sales taxes usually end up as a lower figure in comparison with the State income tax (unless you made big purchases during the tax year, which you will definitely benefit from it). What about the seven state with no state income taxes? One the strongest argument of the proponents is of the seven states that do not have state and income tax deductions to put in their schedule A. Those states are Alaska, Florida, Washington, Texas, Nevada, Wyoming and South Dakota. Yes, we agree that extending section 164 (b) (5) will benefit the taxpayers in these states because they do not have a state and local income tax to deduct in their schedule A, but we will show later on that extending this law can have a negative impact on the greater number of people. Besides, not extending that law will not make the taxpayers of the seven states financially worse of. ...read more.


As most taxpayers do not keep receipts, they would be eligible to put in their "schedule A" the small amount of money in the table that would probably be less than deduction of state and local income taxes. Thus, most intelligent taxpayers would choose to itemize their state and local income taxes instead of state and local general sales taxes or take the standard deduction if they don't itemized. As a result, extending the law will benefit a small percentage of individual and risking the increase of sales taxes of the majority of taxpayers and people that is not in the workforce. Conclusion We are against the extension of section 164 (b) (5). Most taxpayers will not use it because they will take the standard deduction. The taxpayers that itemize will most likely deduct their state and local income taxes because they may not save all their receipts and the amount in the IRS table will be smaller than state and local income taxes. Furthermore, this law does not help taxpayers it only confuses most people and could even mislead certain people in deducting less than they really entitled to. Extending section 164 (b) (5) could potentially encourage people to spend more than they would usually spend; hence, less money if our savings account. Lastly, it could give the state an opportunity to increase sales taxes of general items as they need extra fund. ...read more.

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