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Path: utzoo!watmath!clyde!burl!ulysses!allegra!alice!ark
From: ark@alice.UucP (Andrew Koenig)
Newsgroups: net.taxes
Subject: Re: Deducting State Taxes from the Feds
Message-ID: <4955@alice.uUCp>
Date: Sun, 9-Feb-86 19:11:08 EST
Article-I.D.: alice.4955
Posted: Sun Feb  9 19:11:08 1986
Date-Received: Tue, 11-Feb-86 06:32:52 EST
References: <5858@fortune.UUCP>
Organization: Bell Labs, Murray Hill
Lines: 28

>   I hope this is the way that I think, or else I'm out
> another $700.  In '83 on my itemized deductions, I dedcuted the
> State taxes that I actually paid, not the amount witheld. This
> means that out of $3k witheld, I only deducted the $1.5 owed.
> So as  see it, I have just paid Federal taxes on the remaining
> $1.5K.
>
>    So, in '84 I did not claim the $1.5 refund from the State as
> income, or else I would pay Federal taxes on it again. I just got 
> a letter that says that they are upset that I did not claim it.
>
>     Should I have deducted the entire witheld ammount in '83, and
> then claim the refund amount as income in '84?  I think I am 
> still O.K. on this, but I would like to know if anyone else has
> been caught up in this and knows the real story.

My understanding is that you deduct taxes paid in the year you paid them.
Thus, in your case, you paid $3k in '83 and got back $1.5K in '84.
You should have deducted the $3K as taxes paid on your '83 return
and declared the $1.5k as income for your '84 return.

If I were in your shoes, I would go back and figure my '83 and '84
taxes again the right way.  Since Federal taxes went down between
'83 and '84, refiguring both returns will probably result in their
owing you a little money (unless you made MUCH more money in '84
than in '83).  I would then send them a letter explaining that
I agreed that I made a mistake, that I had refigured my tax returns,
and that as they can see, they owe me $whatever.