Brad,who uses the cash method of accounting,lives in a state that imposes an income tax (including withholding from wages).On April 14,2013,he files his state return for 2012,paying an additional $600 in state income taxes.During 2013,his withholdings for state income tax purposes amount to $3,550.On April 13,2014,he files his state return for 2013 claiming a refund of $800.Brad receives the refund on June 3,2014.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 2013 (filed in April 2014)?
A)$3,350.
B)$3,550.
C)$4,150.
D)$5,150.
E)None of the above.

Question

Quizplus · Accepted Answer

Brad can deduct the $3,550 of state income taxes withheld during 2013, and also the $600 state income taxes paid when he filed his 2012 return in 2013. He cannot deduct the $800 refund he received in 2014, as this is treated as a recovery of a prior year deduction. Therefore, the total deduction for state income taxes on his federal income tax return for 2013 is $3,550 + $600 = $4,150.

Brad,who Uses the Cash Method of Accounting,lives in a State