Max, a cash basis taxpayer, had $2,100 in state income taxes withheld from his p
ID: 2443797 • Letter: M
Question
Max, a cash basis taxpayer, had $2,100 in state income taxes withheld from his paychecks during the current year. In April of the current year, Max paid $300 for his previous year's state tax return. Max's total tax liability on his state tax return for the current year is $1,950. How much should Max deduct as an itemized deduction for state income taxes on his current year federal income tax return?a. $1,950 b. $2,100 c. $2,250 d. $2,400
explain why max can add the $300 dollars to the previous year or why not...
Explanation / Answer
You deduct what you pay in that year. It does not matter which tax year it is for. So for the "current year" referred to in the problem, he would deduct the 2100 that was withheld throughout the current year plus the 300 he paid in April of the current year (even though it was for payment of tax due from a previous year) for a total of $2400. So you can add the 300 because he paid it in that year.