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From: bruceco@shark.UUCP (Bruce Coorpender)
Newsgroups: net.taxes
Subject: Re: Deducting State Taxes from the Feds
Message-ID: <1644@shark.UUCP>
Date: Wed, 12-Feb-86 15:48:35 EST
Article-I.D.: shark.1644
Posted: Wed Feb 12 15:48:35 1986
Date-Received: Fri, 14-Feb-86 07:26:43 EST
References: <5858@fortune.UUCP>
Reply-To: bruceco@shark.UUCP (Bruce Coorpender)
Organization: Tektronix, Wilsonville OR
Lines: 43

In article <5858@fortune.UUCP> wall@fortune.UUCP (Jim Wall) writes:
>
>   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.
>
According to my understanding of the tax law, the answer is that you
should have deducted the entire amount withheld by the state in 1983,
and claimed the resulting refund as income in 1984. The state is
required to send you a form stating the amount of refund paid for
the previous year. They also send a copy to the IRS. 

Although initial analysis might construe no difference, it does make
a difference in the gross income (in the above, for 1984), making
it higher. This often results in putting you in a higher tax bracket.
The IRS requirement also makes sense in calculation of your taxes,
as your state taxes, at least in Oregon, allow deduction for the
Federal taxes, and vice versa. If you don't constrain one of them
you must solve the problem recursively. And God knows we don't
need to make filling out the bureaucratic nonsense any more
difficult than it is now. After all, there is a finite limit to
the number of adults with 6th grade educations that should be able
to fill them out unaided.

[The foregoing message is a part of the Paperwork reduction act of
1982, and as amended in 1983, 1984,........]

BTW, Jim, you can go back and refile the 1983, 1984 taxes and
probably balance out much of the problem.

BC