Tax Due Amount Paid with State Return

[Yardley CPA]

Single filer who took Standard Deduction in 2009. 2009 state return showed balance due. This year, filer has enough deductions to itemize. Can they deduct the tax paid with 2009 state return as an itemized deduction on this years Schedule A - State and Local Taxes?

Why am I brain dead on this? I know you do not reflect a state refund as income if you did not itemize your deductions the prior year. But I'm drawing a blank regarding state taxes paid with state return and whether they are deductible? ATX automatically included it as a deduction on this years Schedule A.

[rfassett]

Yes - it is always deductible. Sometimes it just gets lumped into the standard deduction. Since your client is most likely a cash basis taxpayer, he will take the deduction in the year in which it was paid.

As to why you are brain dead on this - I do not know. The more troubling question is - why am I not?

[Yardley CPA]

Thanks...appreciate the feedback. I'm still brain dead. ;-)

[jainen]

>>it is always deductible<<

I can think of at least two circumstances when state taxes are not deductible. If payments greatly exceed the reasonable amount needed to cover taxes due the following year, they are generally not deductible. Estimated payments made in January would likewise not be deductible to the extent they are offset by a refund in April.

[rfassett]

Agreed, jainen, but in both of the examples you cite the tax is not being paid. The question was, can taxes paid in the current year for the prior year's liability be deducted? In other words, if I write a check to pay my state tax in April of this year to pay my 2010 state taxes, can that payment be included in itemized deductions on the 2011 return. The answer to that question is as I stated above.

[jainen]

>>it is always deductible<<

Corrected response: Payment of estimated taxes may not be deductible in some situations. Payment of actual tax due (excluding penalty and interest) is generally deductible except as limited by AMT. The deduction may also be limited by expected or actual refunds, change in filing status, or another less common circumstance.

[Janitor Bob]

>>it is always deductible<<

I can think of at least two circumstances when state taxes are not deductible. If payments greatly exceed the reasonable amount needed to cover taxes due the following year, they are generally not deductible. Estimated payments made in January would likewise not be deductible to the extent they are offset by a refund in April.

For current years tax return (2010) I would think that only state taxes paid in 2010 would be deductible. State taxes paid in 2011 would be deductible on next year (2011) Fed tax return

[kcjenkins]

That is why when you enter the estimated tax paid, you have to enter the date paid, or it will not flow. Because the total paid will go to line 62, but only the amount paid in 2010 will go to the Sch A. The Jan payment will not go to the A.