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Ed Johnson
Ed Johnson, Tax Preparer
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Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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I received a 1099g for a state refund from the prior tax yr,

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I received a 1099g for a state refund from the prior tax yr, which I know is taxable in the current since I had already been given a deduction on the withheld amount in the prior year. Problem is I got a big refund from one state (per 1099g), but also paid a big amount to another state. Shouldn't I be able to offset the 2 and pay on the net? How do I do this? I orepare in turbo tax and can't seem to find out how to adjust the 1099 amount.
Submitted: 5 years ago.
Category: Tax
Expert:  Ed Johnson replied 5 years ago.

Dear Jmurphy,

 

In order to take advantage of taxes paid to states in one year, you have to itemize your return.

 

As long as you itemize, you would be able to claim all state income taxes paid.

 

Turbo tax generally only provides you one state tax return to down load. In order to have Turbo Tax handle the calculations automatically, you would have to purchase and down load the second state tax software from Turbo Tax, or add the state tax for the second state manually.

 

 

Customer: replied 5 years ago.

Thank you, XXXXX XXXXX do have both states (NYS and CT) from Turbo. The real numbers are relating to my 2007 return were a refund form NYS for $24M, and a payment to CT for $16M. For the 2008 tax year, I report per my 1099g the $24MM refund, but there is no place for an offset. The real question is how do I get the benefit of the offset (where in the return do I put it). As an fyi, I allocated time out of nys (where I primarily work) to CT (where I live). Had I not done this, I would have gotten a refund from NYS for $4M. However, my 1009 would have then only been $4M in 2008.

 

Thanks in advance.

Expert:  Ed Johnson replied 5 years ago.

With these figures, I need to ask.

 

Are you a cash basis tax payer?

 

Is this related to a business tax return? and is that business on accrual or cash basis accounting?

Customer: replied 5 years ago.
Hi Ed. It is a personal return and I am MFJ. Not sure about the cash basis question, but I don't do anything other than fill out the 1099. I do itemize becasue I have heavy donations, mortgage interest, proporty taxes, etc.
Expert:  Ed Johnson replied 5 years ago.

IT sounds like you are a cash basis tax payer.

 

As a tax basis tax payer, you can not offset this persay.

 

You have to count income and expenses in the year they were realized.

 

So if you recieved a 1099G for an incoe tax refund received in 2008 (for 2007 taxes), you would iclude this on your 2008 tax return.

 

You would have included any state taxes paid on your 2007 return if you itemized, for tax year 2007.

 

Like wise when you file your 2008 return, you wouldl include state taxes paid in 2008.

 

If you did not include the second state in a prior or current year, then you need to add it as a deduction in the year paid.

 

If TT is not handling this, you may have to override and enter it manually.

 

 

Customer: replied 5 years ago.

This can't be right. Lets look at his more closly.

 

- Per my 2007 w2 I paid state tax of $50M to NYS.

- On my 2007 tax return I got a deduction for this payment.

 

Scenario 1 (which I could have done):

 

- File the NYS state return which would have given me a $4M tax refund

- File in CT with no income and have no CT liability.

- Received a 1099g from NYS for $4M, which would be taxable in 2008.

 

Scenario 2 (whcih I did to arb the differences in tax rates in the 2 states):

 

- Allocated time between NYS and other states, which resulted in a $24M tax refund from NYS.

- Filed in CT, and needed to pay them $16MM in taxes.

- This resulted in a net $8M benefit to me, allthough I knew that I would need to claim the $8M in my 2008 return as income.

- However, my 1099G says $24M refund, and I had to pay federal tax on that amount in 2008.

 

Your response is telling me that this is right, but it can't be. If so, then I am paying an xtra $8.4M ($24M x est 35%) in Federal taxes in 2008, and getting no benefit for the fact that I also paid $16M to CT.

 

Another way to look at it and taking the timing out, is I accrued with my 2007 withholdings $50M for states,and also paid an extra $16M in 2008, for a total of $66M. I received $24M back for my net deduction over 2007/2008 should be $42M.

 

However, since I am not recognizing the $16M payment, I am only getting a $26M net deduction.

Customer: replied 5 years ago.
Not sure if you are working on a response, but my my last correspondence was a question. Thanks Ed.
Expert:  Ed Johnson replied 5 years ago.

Dear j,

 

Lets keep this simple. I see you do not like my response.

 

Lets look at that 16 million to CT.

 

Without regard to your state tax refunds. Lets look at the taxes paid. NO matter how you apportioned income,

 

If you paid 16 million to CT in 2007, you should have claimed the 16 million on your federal return for 2007 as a deduction.

;

If you paid it in 2008, you would include it on your 2008 return as a tax deduction.

 

You would have also claimed on the 2007 return, any taxes paid to NY.

 

Without regard to a 2008 refund that was forth coming.

 

THEN in 2008 you claim all state tax refunds.

 

I know you are looking at the aggregate balance or benefit and liability to you.

 

BUt you have to look at each year separately, because you are cash accounting and not accrual accounting.

 

From an accrual perspective, I agree with you.

 

But you are a cash basis calendar year tax payer.

 

If you paid state taxes in 2008 for 2007 taxes those are also deductible in 2008, because that is when you paid them.

Customer: replied 5 years ago.

Ed. Appreciate the time and maybe my question is more simple:

 

First though, my tax issue is in thousands, not millions (I wish!). I am a banker nad use M= $1,000. My appologies for the confuision on that front.

 

Second, and then maybe my basic question is - Where do I include the $16,000 payment paid to CT on my 2008 return? I see the $24,000 refund payment being captured, but not he $16,000 payment? if I see that,or at least know where to enter that, then I am done!

 

(as I mentioned earlier, I use Turbo tax if that may help you)

 

Thanks again.

Customer: replied 5 years ago.
Hi Ed. Still working on this?
Expert:  Ed Johnson replied 5 years ago.

Yes, I am still working on this. I had to step away to take someone to the doctor.

 

for the year in which you paid the 16,000, on that return, it gets entered on form schedule A, Line 5. check box A.

 

If the 16,000 was actually in 2007, you can do an amended return to capture it on the 2007 return.

 

If the 16,000 was paid in 2008, you would include it on the schedule A for 2008.

 

 

http://www.irs.gov/pub/irs-pdf/f1040sab.pdf

 

 

 

Your tax software should have caputred both states, but sometimes they do not, so you may have to add it in.

 

 

Customer: replied 5 years ago.

Ed. i'll look at that line later today when I go home from work. So if I go to that line and it only includes the amount on my w2, and not the amount of my w2 plus my $16,000 payment, then I can just enter the combined amount?

 

Thanks for for help on this>

 

John

Expert:  Ed Johnson replied 5 years ago.

Yes, simply add the amount you paid to CT. YOu should have some sort of back up documentation in case you get audited. (cancelled checks, receipts, copy of ct state tax return, etc.)

 

 

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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