drv@eisx.UUCP (Dennis Vogel) (02/28/84)
I'm getting confused on this business about declaring state tax refunds as income in the following year. What I think I'm hearing is that if I overpay my tax through state witholding (on money that I have already payed federal tax on for the year it was earned) and get a refund of my overpayment it should be declared as income. Unless I'm not figuring it right, I was already taxed on it once, wasn't I? I just sent some money to the state to hold for me in anticipation of the tax I would owe. (Not by choice, mind you. The state like the feds like us to pay-as-we-go.) Why should I have to treat as income money that is rightfully mine and has already been taxed once as income? Someone please explain what's going on here. Dennis Vogel, AT&T Information Systems Labortories
wetcw@pyuxa.UUCP (T C Wheeler) (02/28/84)
Maybe this will help, I don't know. us say that your total income was $1000 in 1982. Now, in order to reduce your taxes, you take a deduction for your State taxes. Let's say you paid, through payroll deductions, $200 in state taxes. Remember, you haven't figured your State tax yet. On your Fed form 1040, you take a State taxes paid deduction of $200. This reduces your total income to $800. You pay your taxes on this amount to the Feds. Now, you figure out what your State taxes are supposed to be. You find out you overpaid by $100 and will get a refund of $100. What the Feds are saying is that the $100 refund should be added to your income for this year to make up for taking too much in deductions last year. See, when you paid your taxes for 1982, you only paid on $800. The correct deduction for that year should have been $100, not $200, and taxes should have been paid on $900. The one good side of all this is that you are not penalized for figuring your taxes this way, as long as you add the refund back in next year. Now, for how to avoid this hassle in the future. Simply do your State taxes first and take the actual amount paid as the deduction on you Fed form. Thus, if you claim $100 in State taxes, and get a refund from the State, the refund is already accounted for in your total income because you did not reduce the total by the amount of the refund. If you use the actual amount of State taxes paid, there is no trying to figure out what the amount of the damn refund was if your records get lost. T. C. Wheeler
ishizaki@saturn.UUCP (Audrey Ishizaki) (03/03/84)
It is my understanding that only if you itemized on your federal taxes AND claimed your state tax withholdings as deductions, AND received a state tax refund that year, that, in the following tax year, you must declare that state tax refund as income. audrey 'did my taxes last night' ishizaki hplabs!ishizaki
thomas@utah-gr.UUCP (Spencer W. Thomas) (03/06/84)
Only problem with doing your state taxes first - most states want you to enter the "taxable income" from your Federal 1040 form. So, you get yourself into a loop - you need to do your Fed taxes so you can do your state taxes so you can do your Fed taxes so you ... =S
presley@mhuxj.UUCP (Joe Presley) (03/06/84)
The IRS documents say you deduct the state taxes WITHHELD from your pay in 1983, not what you figure you really owed. Any state income tax refund you get is counted as income for 1984 if you deducted this year. (You didn't get the money until 1984, did you?) If owe the state any, then deduct the extra in the 1985 return. The extra deduction could put you into a lower tax bracket. Unfortunately, you could be in a higher bracket come next year. -- Joe Presley (mhuxj!presley, ihnp4!j.presley)