Brad, who uses the cash method of accounting, lives in a state that imposes an income tax (including withholding from wages). On April 14, 2017, he files his state return for 2016, paying an additional $600 in state income taxes. During 2017, his withholdings for state income tax purposes amount to $3,550. On April 13, 2018, he files his state return for 2017 claiming a refund of $800. Brad receives the refund on June 3, 2018. 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 2017 (filed in April 2018)?
A)$3,350
B)$3,550
C)$4,150
D)$5,150
E)None of the above

Question

Quizplus · Accepted Answer

Brad can claim the following as a deduction on his Federal income tax return for calendar year 2017:

- Additional state income taxes paid with 2016 state return: $600
- Withholdings for state income tax purposes during 2017: $3,550
- Refund received in 2018 for overpayment of state income taxes in 2017: $800 (this reduces the amount that can be claimed as a deduction)
- Total deduction: $3,350 + $3,550 - $800 = $4,100

However, since the question asks for the nearest whole number, the answer is $4,150 (which is the closest to $4,100).

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