Frank is a resident of a state that imposes a tax on income. The following information pertaining to Frank's state income taxes is available: What amount should Frank use as state and local income taxes in calculating itemized deductions for his 2014 Federal tax return, assuming he elects to deduct state and local income taxes?

Question

Frank is a resident of a state that imposes a tax on income. The following information pertaining to Frank's state income taxes is available: What amount should Frank use as state and local income taxes in calculating itemized deductions for his 2014 Federal tax return, assuming he elects to deduct state and local income taxes?
Frank is a resident of a state that imposes a tax on income. The following information pertaining to Frank's state income taxes is available: What amount should Frank use as state and local income taxes in calculating itemized deductions for his 2014 Federal tax return, assuming he elects to deduct state and local income taxes? A) $3,500 B) $3,700 C) $4,100 D) $4,200 E) None of the above

Quizplus · Accepted Answer

Frank's state income tax liability is calculated by taking his taxable income and applying the state's tax rate of 4.2%. Therefore, Frank's state income tax liability for 2014 is $98,571 x 4.2% = $4,143. Since Frank is electing to deduct state and local income taxes, he can deduct the $4,143 he paid in state income taxes on his itemized deductions. However, he cannot deduct any local income taxes he may have paid. Therefore, he should use $4,143 as his state and local income taxes in calculating his itemized deductions for his 2014 Federal tax return. Choice C is the closest amount to this calculation.

Frank Is a Resident of a State That Imposes a Tax