Brad, who uses the cash method of accounting, lives in a state that imposes an income tax (including withholding from wages). On April 14, 2014, he files his state return for 2013, paying an additional $600 in state income taxes. During 2014, his withholdings for state income tax purposes amount to $3,550. On April 13, 2015, he files his state return for 2014 claiming a refund of $800. Brad receives the refund on June 3, 2015. If he itemizes deductions, how much may Brad claim as a deduction for state income taxes on his Federal income tax return for calendar year 2014 (filed in April 2015)?

Question

Quizplus · Accepted Answer

Brad can deduct the total amount of state income taxes paid during the year, which includes the $600 paid on his 2013 state return and the $3,550 withheld in 2014. Therefore, he may claim a deduction for $4,150 ($600 + $3,550) on his Federal income tax return for 2014. The $800 refund received in 2015 does not affect the amount of the deduction for the year 2014.

Brad, Who Uses the Cash Method of Accounting, Lives in a State