Question

During the current year, Seth, a self-employed individual, paid the following taxes: Federal income tax $15,000 State income tax $8,500 Real estate taxes on land in South America (held as an investment) $1,000 State sales taxes 300 Personal property taxes based upon value $1,600 Federal self-employment tax $ 800 What amount can Seth claim as an itemized deduction for taxes paid during the current year?

Answer 1

Seth can claim a total of $11,100 as an itemized deduction for taxes paid during the current year, comprising $8,500 for state income tax, $1,000 for real estate taxes on investment land, and $1,600 for personal property taxes based on value.

Step-by-step explanation:

In addressing the amount Seth can claim as an itemized deduction for taxes paid during the current year, we consider the following: Federal income tax, state income tax, real estate taxes, state sales taxes, and personal property taxes based on value.

According to tax regulations, individual taxpayers can deduct state income taxes or sales taxes (whichever is higher), real estate taxes, and personal property taxes that are based on the value of the property. However, federal income taxes and self-employment taxes are not deductible.

Seth's deductible taxes would therefore be state income tax ($8,500), real estate taxes on the land held as an investment ($1,000), personal property taxes based upon value ($1,600), and the greater of either the state sales taxes or the amount by which the state income tax exceeds state sales taxes.

Since Seth's state income tax is significantly higher than his state sales taxes, he would deduct the entire state income tax amount. The total deduction Seth could claim for taxes paid in the current year would thus be the sum of the state income tax, real estate taxes, and personal property taxes, totaling $11,100.

Answer 2

The amount can Seth claim as an itemized deduction for taxes paid during the current year is $10,000

Step-by-step explanation:

For the above mentioned items only the state/ federal paid taxes and property tax can be considered for the itemized deduction. But you can either claim income or sales tax, not both. And also the cap for the tax deduction is capped for $10,000.

Considering only the income tax, since is higher than the sales tax and property tax:

The deductible amount = $15000 + $8500 + $1600

= $25,100

Since, the total cap for itemized tax deduction is limited to only $10,000.

Therefore, The amount can Seth claim as an itemized deduction for taxes paid during the current year is $10,000.