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    Sch A state tax

    In Jan 2016 TP made a state 2015 estimated payment of 35K. So, in 2015 it was not taken as an itemized deduction, but was taken as a credit on state return.

    2015 state return had a refund of 24K, which is being claimed as income on 2016 1040.

    For 2016 Sch A, Pro is deducting both the 35K cash payment and the 24K taxable refund.

    I'm not wrapping my head around why the 24K refund is showing as a deduction? Pro is generally correct, and I probably just have my mind set one way and am missing something obvious.

    Can someone help me understand if/how this is correct?

    Thanks.

    #2
    Was the 2015 overpayment applied toward the 2016's estimate?
    Uncle Sam, CPA, EA. ARA, NTPI Fellow

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      #3
      Originally posted by Uncle Sam View Post
      Was the 2015 overpayment applied toward the 2016's estimate?
      Yes it was.

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        #4
        Yes, it was applied to 2016. I get it now. The applied refund was the same thing as a cash payment. Duh, with help here the light bulb above my head turned on! Thanks!

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          #5
          Overpayments are Refunds

          I remember the day where to be taxable, a taxpayer would actually have to RECEIVE a state tax refund. I had taxpayers refusing refunds and applying them to their succeeding year estimated payments.

          At some point, this changed. The language now states "refunds, overpayments, offsets, etc." and the IRS began taxing overpayments whether they were received or not. The overpayment not taken, however, becomes basis for the succeeding year's Sch A state income tax deduction.

          The taxpayer is better off with less AGI and less Sch A deductions.

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            #6
            You may want to check Publication 525

            There may be something wrong in the reporting of the entire refund as taxable, though it is possible that the net result may be right. When an estimated tax payment (or an amount paid with an extension) and the refund of taxes are made in the same year, part of the refund could be considered attributable to the amount paid in 2015 if any estimates or withholding were made in that year and this part would be considered a taxable refund of previously deducted amount.

            The amount paid in 2016 and refunded in 2016 would not be treated as income and a deduction according to the publication. ProSeries did do this somewhat correctly the last time I tested this. Did they break this or is the "Pro" you referenced a different product.
            Doug

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