Discussion:CA refund not taxable to feds ???
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Discussion Forum Index --> Basic Tax Questions --> CA refund not taxable to feds ???
Discussion Forum Index --> Tax Questions --> CA refund not taxable to feds ???
| 22 February 2008 | |
| Hi Folks, I use lacerte software. A client comes in with a Form 1099-G showing $682 refund from 2006 California tax return. As Lacerte rolls that kind of information over to the present year, I look on the 1040 to make sure the $682 is there to be included in 2007 income. IT IS NOT!!! So, I go searching and find the $682 at the right spot in the program - transferred from 2006. Next, I look at the worksheet for the "taxability" of the state tax refund. The worksheet shows a big, fat zero as to taxability. Have I missed something here? Are some California tax refunds no longer taxable to the feds? I hung on the line for 25 minutes trying to talk with someone at Lacerte - no dice. I finally had to hang up. Any assistance is greatly appreciated. Thanks | |
| 22 February 2008 | |
| Sorry can't help with Lacerte; but it should be taxable if deducted the prior year through itemized return? Maybe sales tax deduction was larger! | |
| 22 February 2008 | |
| Were they in alt min and not get benefit from the state tax paid? The computer usually will catch that. | |
| 22 February 2008 | |
| Or client was subject to AMT last year; didn't receive any benefit from the deduction last year, so no income this year? Edited to add: whoops - posted at same time Anne did! | |
| 22 February 2008 | |
| The most likely cause is that the taxpayer deducted sales tax last year. Check your lacerte worksheets carefully. | |
| 22 February 2008 | |
| its usually AMT, the sales tax deduction, or the limitation on itemized deductions (but that would only limit the taxability, not omit it altogether. Same if overage was due to estimate paid in next year). | |
| 22 February 2008 | |
| Hi and thanks for responding. I went back into the 2006 tax return and discovered that the sales tax option was chosen over the income tax option. Then I looked at the 2006 worksheet. Sure enough, at the bottom of the 2006 worksheet it states that since the sales tax option was used, the refund of $682 is not taxable to the feds in 2007. So that solves that problem and I learn something new. Now I'm wondering if my client will get a letter from the feds for not including the $682 as income on the 2007 federal tax return. Afterall, the feds are looking for every last penny they can get their hands on. And clients get so upset when getting letters from the feds or state tax agencies. | |
| February 22, 2008 | |
| There are two pages in Lacerte to enter all the info for computing the tax benefit(or no benefit) of the state refund - page 14.2 page one & two. Waaaay complicated for the whole process in my opinion. If you have 2006 entered in Lacerte, I sometime cheat by going into that client file - remove the state income tax and see if the federal liability changes. No change, no benefit, not taxable! :-) Just be sure you change the file back to the original numbers. Lacerte is usually pretty good with the computations tho.... | |
| 22 February 2008 | |
| Hi, Can someone help me understand how if the client is in altmin it limits the taxability of the previous year state tax refund?
Thanks. | |
| 22 February 2008 | |
| Because the state tax deduction is added back for alt min. If you did not receive a tax benefit from the deduction, the refund is not taxable.
Its likely they will get a letter from the feds. But all you have to do is send a copy of the previous years' Sch A showing the sales tax deduction, and you are fine. | |
| February 22, 2008 | |
| State taxes are disallowed as a deduction for computing AltMin. So if the client is paying altmin, it means they did not get a benefit from "deducting" the state taxes. 'No benefit'
='s 'not taxable' for any refund received. | |
| 22 February 2008 | |
| Thanks Belle and Joan. That makes perfect sense.
Now I gotta talk to Drake about why they don't seem to support that... The New Tax Guy | |
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