avoiding taxable refund: sales tax vs income tax deduction


B

brew_one

Taxpayer who itemizes: if they opt to use the sales tax
deduction on Sch A, will they avoid having to pay taxes on
their (anticipated) state refund?
 
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P

Phil Marti

Taxpayer who itemizes: if they opt to use the sales tax
deduction on Sch A, will they avoid having to pay taxes on
their (anticipated) state refund?
No. If the income tax wasn't deducted, a refund of it isn't
income.
 
H

Harlan Lunsford

Taxpayer who itemizes: if they opt to use the sales tax
deduction on Sch A, will they avoid having to pay taxes on
their (anticipated) state refund?
Next year; yes.

ChEAr$,
Harlan Lunsford, EA n LA
Mon 7 Feb 2005
 
G

guavaln

Taxpayer who itemizes: if they opt to use the sales tax
deduction on Sch A, will they avoid having to pay taxes on
their (anticipated) state refund?
Yes. The state income tax refund does not need to be added
back if there was no tax benefit from it (i.e., no
deduction) in the year it was paid.

This is a reason why it may be worthwhile for taxpayers in
states that have income taxes, even those at relatively high
rates, to consider electing the sales tax deduction rather
than the state income tax deduction.

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.
 
A

A.G. Kalman

No. If the income tax wasn't deducted, a refund of it isn't
income.
Phil meant to say "Yes" as the question was worded "will
they avoid having to pay" rather than "will they have to
pay."
 
F

Frederick Jorden

(e-mail address removed) wrote:
Yes. The state income tax refund does not need to be added
back if there was no tax benefit from it (i.e., no
deduction) in the year it was paid.

This is a reason why it may be worthwhile for taxpayers in
states that have income taxes, even those at relatively high
rates, to consider electing the sales tax deduction rather
than the state income tax deduction.
It would depend upon how much income tax was withheld and
will be refunded vs. how much the sales tax deduction will
be.
 
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T

Thomas Healy

(e-mail address removed) wrote:
Maybe. Here in Colorado we have refunds (some years, not
2005) that are based on sales taxes. So in a year in which
there is a sales tax refund, THAT would be taxable if you
claimed the sales tax deduction instead of the income tax
deduction;.
 

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