Brad,who uses the cash method of accounting,lives in a state that imposes an income tax (including withholding from wages).On April 14,2016,he files his state return for 2015,paying an additional $600 in state income taxes.During 2016,his withholdings for state income tax purposes amount to $3,550.On April 13,2017,he files his state return for 2016 claiming a refund of $800.Brad receives the refund on June 3,2017.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 2016 (filed in April 2017)?
A)$3,350
B)$3,550
C)$4,150
D)$5,150
E)None of the above

Question

Quizplus · Accepted Answer

Brad paid $600 in state income taxes for 2015, which is not deductible on his 2016 federal tax return. However, he had $3,550 withheld for state income tax purposes in 2016 and received a refund of $800 in 2017. According to IRS rules, Brad can choose to deduct either the income taxes paid in 2016 or the income taxes withheld in 2016, whichever is larger. In this case, $3,550 is the larger amount, so Brad can deduct this on his 2016 federal tax return. Adding the $600 Brad paid for 2015, Brad can claim a total of $4,150 in state income taxes as a deduction on his federal tax return for 2016.

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