How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Wallstreet Esq. Your Own Question
Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
Satisfied Customers: 586
Experience:  10 years experience
Type Your Tax Question Here...
Wallstreet Esq. is online now
A new question is answered every 9 seconds

We are about to settle a lawsuit regarding an interpleder

Customer Question

We are about to settle a lawsuit regarding an interpleder with a bank and someone who self-dealt themselves a huge portion of an IRA. This person lives in Maine and is subject to Maine State income tax.
JA: The Accountant will know how to help. Please tell me more, so we can help you best.
Customer: His Federal income tax bracket is 28% His Maine Tax is about 7%.
JA: Is there anything else the Accountant should be aware of?
Customer: Is the 7% of Maine tax fully refundable on his 2017 federal tax?
Submitted: 2 months ago.
Category: Tax
Customer: replied 2 months ago.
The lawyers want us to lessen our payout 35% of our settlement to the defendant because of combined 7% Maine state income tax plus 28% federal income tax. I'm saying we should only lesson the pay out to us by 28% because the Maine tax is fully refundable from the federal tax on his 1040 and schedule A of the this tax year 2017.
Expert:  emc011075 replied 2 months ago.

Hi. My name is ***** ***** I will be happy to help you.

A deduction is not a credit. The deduction of state taxes on Schedule A is not fully refundable. A deduction only reduces your taxable income but not bellow 0. For instance, $1000 deduction in 28% tax bracket will reduce your tax liability by $280, NOT $1000. There are another things to consider. Does the person itemize his deduction or is he claiming standard deduction? If he does not have enough to itemize he will not benefit from the deduction in any way.

Until the person files his tax return there's no way to tell how the deduction affect is his taxes. The most benefit he will receive (assuming 28% is his effective tax rate, not tax bracket), will be $28 on every $100 he can deduct, if he can deduct it.

Expert:  emc011075 replied 2 months ago.

I see you read my respond. Do you have any questions? Is there anything else I can help you with today?