wall@fortune.UUCP (Jim Wall) (02/05/86)
I hope this is the way that I think, or else I'm out
another $700. In '83 on my itemized deductions, I dedcuted the
State taxes that I actually paid, not the amount witheld. This
means that out of $3k witheld, I only deducted the $1.5 owed.
So as see it, I have just paid Federal taxes on the remaining
$1.5K.
So, in '84 I did not claim the $1.5 refund from the State as
income, or else I would pay Federal taxes on it again. I just got
a letter that says that they are upset that I did not claim it.
Should I have deducted the entire witheld ammount in '83, and
then claim the refund amount as income in '84? I think I am
still O.K. on this, but I would like to know if anyone else has
been caught up in this and knows the real story.
Thanks, Jim
Jim Wall
...amd!fortune!wallark@alice.UucP (Andrew Koenig) (02/10/86)
> I hope this is the way that I think, or else I'm out > another $700. In '83 on my itemized deductions, I dedcuted the > State taxes that I actually paid, not the amount witheld. This > means that out of $3k witheld, I only deducted the $1.5 owed. > So as see it, I have just paid Federal taxes on the remaining > $1.5K. > > So, in '84 I did not claim the $1.5 refund from the State as > income, or else I would pay Federal taxes on it again. I just got > a letter that says that they are upset that I did not claim it. > > Should I have deducted the entire witheld ammount in '83, and > then claim the refund amount as income in '84? I think I am > still O.K. on this, but I would like to know if anyone else has > been caught up in this and knows the real story. My understanding is that you deduct taxes paid in the year you paid them. Thus, in your case, you paid $3k in '83 and got back $1.5K in '84. You should have deducted the $3K as taxes paid on your '83 return and declared the $1.5k as income for your '84 return. If I were in your shoes, I would go back and figure my '83 and '84 taxes again the right way. Since Federal taxes went down between '83 and '84, refiguring both returns will probably result in their owing you a little money (unless you made MUCH more money in '84 than in '83). I would then send them a letter explaining that I agreed that I made a mistake, that I had refigured my tax returns, and that as they can see, they owe me $whatever.
rs55611@ihuxk.UUCP (Robert E. Schleicher) (02/11/86)
> > I hope this is the way that I think, or else I'm out > another $700. In '83 on my itemized deductions, I dedcuted the > State taxes that I actually paid, not the amount witheld. This > means that out of $3k witheld, I only deducted the $1.5 owed. > So as see it, I have just paid Federal taxes on the remaining > $1.5K. > > So, in '84 I did not claim the $1.5 refund from the State as > income, or else I would pay Federal taxes on it again. I just got > a letter that says that they are upset that I did not claim it. > > Should I have deducted the entire witheld ammount in '83, and > then claim the refund amount as income in '84? I think I am > still O.K. on this, but I would like to know if anyone else has > been caught up in this and knows the real story. > > Thanks, Jim > What you did was correct, but not the usual way people handle this situation, which probably accounts for the IRS letter. The 1040 instructions for the line for reporting state tax refunds has a mini-work-sheet which leads you to the same conclusion you reached: Since you only deducted 1.5k dollars last year, despite having 3k withheld, you don't report the $1.5k refund as income this year. (You only report refunds that had been deducted the previous year, and thus reduced your taxes the previous year.) The problem is, Your W-2 form last year showed state taxes withheld, not what you actually owed (or, in this case, paid). Also, your state presumably reported to the IRS (and to you, via some kind of 1099 form) the refund amount you received this year. All in all, you're in the clear, but would be better off if you deducted everything that was withheld for state taxes, and then added your refund of state taxes into next year's return. Bob Schleicher ihuxk!rs55611
markb@sdcrdcf.UUCP (Mark Biggar) (02/12/86)
In article <5858@fortune.UUCP> wall@fortune.UUCP (Jim Wall) writes: > > I hope this is the way that I think, or else I'm out >another $700. In '83 on my itemized deductions, I dedcuted the >State taxes that I actually paid, not the amount witheld. This >means that out of $3k witheld, I only deducted the $1.5 owed. >So as see it, I have just paid Federal taxes on the remaining >$1.5K. > > So, in '84 I did not claim the $1.5 refund from the State as >income, or else I would pay Federal taxes on it again. I just got >a letter that says that they are upset that I did not claim it. > > Should I have deducted the entire witheld ammount in '83, and >then claim the refund amount as income in '84? I think I am >still O.K. on this, but I would like to know if anyone else has >been caught up in this and knows the real story. > I did exactly the same thing, except it was for 82 and 83. All I had to do was write a letter to the IRS explaining what I had done and inclosed enough of my 82 1040 and my 82 state form to document it and they declared it a wash (I owe them nothing, they owe me nothing). If they insist that you pay the extra tax for 84, be sure you file an ammended return for 83 deducting the full amnount, thus increasing the return form your 83 taxes (they will have to send you a checK). Mark Biggar {allegra,burdvax,cbosgd,hplabs,ihnp4,akgua,sdcsvax}!sdcrdcf!markb
bruceco@shark.UUCP (Bruce Coorpender) (02/12/86)
In article <5858@fortune.UUCP> wall@fortune.UUCP (Jim Wall) writes: > > I hope this is the way that I think, or else I'm out >another $700. In '83 on my itemized deductions, I dedcuted the >State taxes that I actually paid, not the amount witheld. This >means that out of $3k witheld, I only deducted the $1.5 owed. >So as see it, I have just paid Federal taxes on the remaining >$1.5K. > > So, in '84 I did not claim the $1.5 refund from the State as >income, or else I would pay Federal taxes on it again. I just got >a letter that says that they are upset that I did not claim it. > > Should I have deducted the entire witheld ammount in '83, and >then claim the refund amount as income in '84? I think I am >still O.K. on this, but I would like to know if anyone else has >been caught up in this and knows the real story. > According to my understanding of the tax law, the answer is that you should have deducted the entire amount withheld by the state in 1983, and claimed the resulting refund as income in 1984. The state is required to send you a form stating the amount of refund paid for the previous year. They also send a copy to the IRS. Although initial analysis might construe no difference, it does make a difference in the gross income (in the above, for 1984), making it higher. This often results in putting you in a higher tax bracket. The IRS requirement also makes sense in calculation of your taxes, as your state taxes, at least in Oregon, allow deduction for the Federal taxes, and vice versa. If you don't constrain one of them you must solve the problem recursively. And God knows we don't need to make filling out the bureaucratic nonsense any more difficult than it is now. After all, there is a finite limit to the number of adults with 6th grade educations that should be able to fill them out unaided. [The foregoing message is a part of the Paperwork reduction act of 1982, and as amended in 1983, 1984,........] BTW, Jim, you can go back and refile the 1983, 1984 taxes and probably balance out much of the problem. BC
haleden@boulder.UUCP (Hal Eden) (02/13/86)
> > > > I hope this is the way that I think, or else I'm out > > another $700. In '83 on my itemized deductions, I dedcuted the > > > > > > Thanks, Jim > > > What you did was correct, but not the usual way people handle this > situation, which probably accounts for the IRS letter. The 1040 > . > . > . > Bob Schleicher > ihuxk!rs55611 The only problem in calculating things the way that you did, Jim, is that if you are in a state which allows you to deduct the amount you paid in Federal taxes, you don't know how much state tax you actually paid until you have finished calculating how much federal tax you. I guess the instructions are the way that they are in order to break this circular definition (and if your income is increasing every year, the IRS gets a little more out of you). Since this is a converging series (or something like that) you could calculate the actual figure through successive approximations until you find a fixpoint. But, If you are in a state which doesn't allow deduction of the Fed Tax, your calculation is correct. (That doen't mean that the IRS won't expect you to figure it the other way) haleden