From: Rob Sweeney (rjs@rsie.com)
Date: Tue May 23 2000 - 10:45:11 MDT
* Michael S. Lorrey <mike@datamann.com> [000523 12:30]:
> Rob Sweeney wrote:
> Living in a no-income tax state, this is all academic for me, but from my Vermont
> freinds I understand that state income tax is deductible from your federal income tax.
> Is this or is this not true? If it is, then state income tax has no effect.
> Mike Lorrey
Deductions reduce taxable income, not the tax itself (directly). The
amount of the state/local tax is knocked off your Federal taxable
income, but that's not the same as it cancelling out Federal tax. If
I make $100k and the Fed rate is 30% and the state/local rate is 10%, (don't
know the actual numbers and it's more complicated than this, but for example..)
I pay $10k state/local, and my income for Federal purposes is reduced to
$90k, so I pay $27000 Fed taxes and $10k state/local = $37000 total rather than
$30000 Federal and no state. So, you pay more if you pay state/local, but
it's not as if it's strictly added on to the Federal amount because of
the deductability - sorry if I implied this in my original message. (of course
I just got hit with an IRS penalty this morning [business not personal
though..] so I could be wrong :-))
-- /rs Rob Sweeney rjs@rsie.com, http://www.rsie.com/ Time is a warning.
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