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From: wetcw@pyuxa.UUCP (T C Wheeler)
Newsgroups: net.taxes
Subject: Re: More on state income tax
Message-ID: <587@pyuxa.UUCP>
Date: Tue, 28-Feb-84 14:43:23 EST
Article-I.D.: pyuxa.587
Posted: Tue Feb 28 14:43:23 1984
Date-Received: Sat, 3-Mar-84 07:44:10 EST
References: <696@eisx.UUCP>
Organization: Central Services Org., Piscataway N.J.
Lines: 29

Maybe this will help, I don't know.

 us say that your total income was $1000 in 1982.  Now, in order to
reduce your taxes, you take a deduction for your State taxes.  Let's
say you paid, through payroll deductions, $200 in state taxes.  Remember,
you haven't figured your State tax yet.  On your Fed form 1040, you take
a State taxes paid deduction of $200.  This reduces your total income
to $800.  You pay your taxes on this amount to the Feds.  Now, you figure
out what your State taxes are supposed to be.  You find out you overpaid
by $100 and will get a refund of $100.  What the Feds are saying is that
the $100 refund should be added to your income for this year to make
up for taking too much in deductions last year.  See, when you paid your
taxes for 1982, you only paid on $800.  The correct deduction for that
year should have been $100, not $200, and taxes should have been paid
on $900.  The one good side of all this is that you are not penalized
for figuring your taxes this way, as long as you add the refund back
in next year.

Now, for how to avoid this hassle in the future.  Simply do your State
taxes first and take the actual amount paid as the deduction on you
Fed form.  Thus, if you claim $100 in State taxes, and get a refund
from the State, the refund is already accounted for in your total
income because you did not reduce the total by the amount of the
refund.  If you use the actual amount of State taxes paid, there
is no trying to figure out what the amount of the damn refund was
if your records get lost.  

T. C. Wheeler