Tonya is a cash basis taxpayer.In 2012, she paid state income taxes of $6,000.In early 2013, she filed her 2012 state income tax return and received a $600 refund.

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As a cash basis taxpayer, Tonya cannot deduct the state income taxes paid in 2012 until she actually paid them. Therefore, she cannot amend her 2012 return to reduce her itemized deductions. Nor does the $600 refund generate any income tax liability for 2013. However, since Tonya itemized her deductions in 2012, the $600 state income tax refund she received in 2013 must be included in her gross income for 2013, to the extent that the $6,000 state income tax payment reduced her 2012 Federal income tax liability. This prevents Tonya from receiving a double tax benefit for the same state tax payment.

Tonya Is a Cash Basis Taxpayer