The Internal Revenue Service is the federal agency tasked with collecting federal income taxes. Since U.S. income taxes are collected via a pay-as-you-go system, most people who work as employees pay their income taxes through payroll withholding. Self-employed individuals are typically required to file quarterly reports. The federal income tax is hardly the only money you pay to the IRS. The IRS also collects Social Security and Medicare taxes, and none of that money is tax deductible.
State Income Taxes
Your employer might withhold more than just your federal income taxes, Social Security and Medicare from your paycheck. Most states have a state income tax that your employer must withhold as well. If you choose to itemize your deductions, you can deduct the amount of your state income taxes when you file your federal income tax return.
Federal Income Taxes
While your state income taxes are deductible on your federal return, your federal income taxes are not deductible on your state income tax return. Federal income taxes are not deductible on your federal income tax return either, whether you paid them in advance through payroll withholding, through quarterly payments or in a lump sum. If you paid more during the year than you were obligated to pay, you are due a refund of the overage.
The IRS allows you to deduct certain other taxes from your income, provided you itemize your deductions. To be deductible, the taxes must have been imposed on you, and you must have paid those taxes during the tax year. A common form of deductible taxes are real estate taxes, although these taxes are not paid to the IRS. Certain taxes, including Social Security taxes, Medicare taxes, gift taxes and fines and penalties for not paying your taxes, are specifically excluded by law from being tax deductible.
You're allowed to deduct the contributions you make to qualifying organizations. This includes contributions to the United States, the District of Columbia, an individual state or a U.S. possession, or any political subdivision of a state or possession. Your contribution must be for public purposes rather than for your personal benefit. If you make a contribution to the federal government through the IRS, for example to help pay down the national debt, that contribution is tax deductible as a charitable contribution, provided you itemize your deductions.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.