Brad,who uses the cash method of accounting,lives in a state that imposes an income tax (including withholding from wages).On April 14,2015,he files his state return for 2014,paying an additional $600 in state income taxes.During 2015,his withholdings for state income tax purposes amount to $3,550.On April 13,2016,he files his state return for 2015 claiming a refund of $800.Brad receives the refund on June 3,2016.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 2015 (filed in April 2016)?
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 lesser of his actual state income tax payments or the amount of state income tax shown on his W-2 form ($3,550). Additionally, he can deduct the $600 in state income tax payments made in 2015, as long as he did not claim them as an itemized deduction on his 2014 federal income tax return. Finally, he can include the $800 state income tax refund received in 2016 as income on his 2016 federal income tax return if he deducted the state income taxes paid in 2015 on his 2015 federal income tax return. Therefore, Brad can deduct a total of $4,150 ($3,550 + $600).

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