Anita receives a state income tax refund of $550 in May 2014. When she filed her 2013 federal income tax return, she used the standard deduction amount. Although the all-inclusive income concept would require Anita to report the $550 in her federal gross income for 2014, she may exclude it. What tax concept explains why the exclusion is permitted in this case?

Question

Quizplus · Accepted Answer

The tax benefit rule allows taxpayers to exclude state tax refunds from federal gross income if they did not itemize deductions in the previous year, as is the case with Anita using the standard deduction.

Anita Receives a State Income Tax Refund of $550 in May