Drake question

[TaxprepP]

Try this work around. Enter a negative amount in line 5 entry box. This will lower the income taxes and make sales tax a higher figure for Drake to take.

[David1980]

Taxpayer purchased two vehicles in 2014 which made sales tax deduction much higher than a normal year. Sales tax deduction was still slightly below income tax deduction, but if sales tax deduction is claimed rather than income tax deduction, the state refund is not included as income for 2015. Taxpayer is in 25% tax bracket with over an $8000 state refund. He will benefit in 2015 by not claiming the $8000 refund as income. By not claiming the $8000 state refund in 2015, taxpayer's income is such that he will be able to claim more of the child tax credit and a savings of $2000 in income tax at $8000 @ 25%. He is losing approximately $1200 refund for 2014 but will have a larger refund of $2400 in 2015; thus coming out ahead by $1200 overall.

Even if they did deduct the $8,000 state income taxes, they wouldn't have to show the entire $8,000 as taxable. From pub 525 "If you could choose to deduct for a tax year either: State and local income taxes, or State and local general sales taxes, then the maximum refund that you may have to include in income is limited to the excess of the tax you chose to deduct for that year over the tax you did not choose to deduct for that year."

So say for example state income taxes is $8,000 and sales taxes $7,900. If they choose to deduct state income taxes the most they would have to show taxable from a refund of state taxes is the excess - $100.

[tpert]

Taxpayer purchased two vehicles in 2014 which made sales tax deduction much higher than a normal year. Sales tax deduction was still slightly below income tax deduction, but if sales tax deduction is claimed rather than income tax deduction, the state refund is not included as income for 2015. Taxpayer is in 25% tax bracket with over an $8000 state refund. He will benefit in 2015 by not claiming the $8000 refund as income. By not claiming the $8000 state refund in 2015, taxpayer's income is such that he will be able to claim more of the child tax credit and a savings of $2000 in income tax at $8000 @ 25%. He is losing approximately $1200 refund for 2014 but will have a larger refund of $2400 in 2015; thus coming out ahead by $1200 overall.

I am not following this.

If he takes the income tax deduction, the taxability of the refund will be limited to the difference between the sales tax that would have been deducted and the income tax that was (among other limitations).

Why would you ever make a person pay tax on the entire $8000 refund if the sales tax deduction is only slightly less? How could he lose $1200 refund for 2014 if the sales tax deduction is only slightly less.

[mastertaxguy]

Drake software issues

Drake software does not allow you to override the income tax vs sales tax deduction on Schedule A line 5. I have a taxpayer who purchased two new vehicles in 2014 so sales tax is slightly below income tax paid. Drake only calculates the larger of the two. While the income tax deduction is better for 2014 refund, taking the sales tax deduction instead will be more beneficial for the taxpayer in 2015. I am so surprised that Drake does not have an override programmed into the software. It also seems that many of the support people are not as knowledgeable as in past years. Have other tax preparers run into this issue and how have you handled?

Peggy Sioux

1. This is a long standing problem with Drake which they have refused to address. My practice, when I want to do this, is to reduce or eliminate State withholding after computing the sales tax amount, then file the federal (hold the State), then go back and change the state withholding and file just the state(s). It is a pain.
2. Drake has other issues which are causing problems. For example, while most reader of this Forum use software which allows them to print a return without full social security/ITIN numbers for taxpayers or dependents, Drake refuses to do that. Curiously, they have a form the prints this year with partial SS numbers but insists on printing full SS # on paper copies of returns, schedules, etc, for taxpayers and others. They can, and should do better. Which is why several of my former Drake Colleagues are or have switched to something else in spite of the cost. True, you get what you pay for.
3. Then again, Drake Ventures may not be reading this Forum.

[ATSMAN]

1. This is a long standing problem with Drake which they have refused to address. My practice, when I want to do this, is to reduce or eliminate State withholding after computing the sales tax amount, then file the federal (hold the State), then go back and change the state withholding and file just the state(s). It is a pain.
2. Drake has other issues which are causing problems. For example, while most reader of this Forum use software which allows them to print a return without full social security/ITIN numbers for taxpayers or dependents, Drake refuses to do that. Curiously, they have a form the prints this year with partial SS numbers but insists on printing full SS # on paper copies of returns, schedules, etc, for taxpayers and others. They can, and should do better. Which is why several of my former Drake Colleagues are or have switched to something else in spite of the cost. True, you get what you pay for.
3. Then again, Drake Ventures may not be reading this Forum.

Why don't you do -$amount = state tax withheld on line 5 of Sch A screen? Seems to work.

I agree, it would be nice if there was an option to just print the last 4 digits of the SS on a client copy. Until then I just use Adobe to edit that field when necessary.

I e-mailed a client her return with only the last 4 SS digits and it was not acceptable to her bank??

[mastertaxguy]

Why don't you do -$amount = state tax withheld on line 5 of Sch A screen? Seems to work.

I agree, it would be nice if there was an option to just print the last 4 digits of the SS on a client copy. Until then I just use Adobe to edit that field when necessary.

I e-mailed a client her return with only the last 4 SS digits and it was not acceptable to her bank??

I will try the Adobe thing: you black out the first 5 digits???

Good idea though.

As for your other suggestion/idea, our offices are requiring office managers/senior preparers to do the 'thing' with the State Income taxes so as to force sales tax deductions in the way described: we will take a look at your idea over the summer. Always need to have a procedure that can be dumbed down as needed. We have found changing such things during tax filing season can cause other issues with staff.

I do wonder, however, how much Drake people check these, and other tax blogs, for comments about their product. Thanks again.