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Form 1120, cash basis. If Taxes paid to IRS are deductible,

are refunds for overpayment the...
Form 1120, cash basis. If Taxes paid to IRS are deductible, are refunds for overpayment the equivalent of income?
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Answered in 9 minutes by:
10/28/2017
Chad EA, CFP ®
Chad EA, CFP ®, CERTIFIED FINANCIAL PLANNER TM, Professional
Category: Tax
Satisfied Customers: 2,318
Experience: Federally licensed IRS Enrolled Agent, Certified Financial Planner (R), MBA
Verified

Hello Jeff! My name is ***** ***** I will be able to assist you.

Refunds of over payments are not considered income. Generally, over payments represent a return of your post tax dollars paid in advance over the amount of your tax liability.

There are multiple reasons why you may receive an over payment so I have attached the below link for your convenience.

https://www.irs.gov/irm/part35/irm_35-008-003

Please let me know if you have any follow up questions or if you would like me to expand my answer.

Thank you!

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Customer reply replied 6 months ago
Chad, appreciate your help. I'm confused... Let's say I make a $1500 estimated payment with an extension form last year, and my liability winds up being $1000 when filing the return this year for last year's activity. Seems I would have a $1500 deduction last year. Are you saying there is NOT a $500 "income" this year? If so, I'd make a $11,500 estimated payment with the extension to increase expense, decrease net income in current year, then have $10,500 returned "tax free." please explain further. Also, as a layman, I didn't see how the link related to this circumstance. Thank you, --jeff

The $10,500 is returned to you tax free because the funds represent a return of your post tax income after your tax liability is calculated.

If you send in $11,500 (in hopes of increasing your expenses) the over payment is returned so the payment is then essentially not a deductible expense. The total expense for taxes is returned to $1,500

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If you make a $1,500 payment and the tax liability ends up being $1,000. The IRS will typically send you back the over payment and the $500 is not considered income. The $500 is considered a return of your money that you have already paid tax on.

I would be happy to explain further if I was not able to clarify you question for you

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Customer reply replied 6 months ago
almost there... what is the difference between the first scenario I gave and the second?

Both scenarios would have the same outcome.

In the second scenario the payment was used to increase expenses, but once the payment is returned because it is an overpayment, the expense has to be adjusted

Chad EA, CFP ®
Chad EA, CFP ®, CERTIFIED FINANCIAL PLANNER TM, Professional
Category: Tax
Satisfied Customers: 2,318
Experience: Federally licensed IRS Enrolled Agent, Certified Financial Planner (R), MBA
Verified
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