Anita receives a state income tax refund of $550 in May 2018. When she filed her 2017 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 2018, 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 from income any recovery of an item that was previously deducted to avoid double-dipping. Since Anita used the standard deduction in calculating her federal income tax, she did not get a tax benefit from the state income tax refund. Therefore, she may exclude it from her gross income.

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