Pierre, a cash basis, unmarried taxpayer, had $1,400 of state income tax withhel
ID: 341695 • Letter: P
Question
Pierre, a cash basis, unmarried taxpayer, had $1,400 of state income tax withheld during 2017. Also in 2017, Pierre paid $455 that was due when he filed his 2016 state income tax return and made estimated payments of $975 toward his 2017 state income tax liability. When Pierre files his 2017 Federal income tax return in April 2018, he elects to itemize deductions, which amount to $15,650, including the state income tax payments and withholdings, all of which reduce his taxable income. a. What is Pierre’s 2017 state income tax deduction? b. As a result of overpaying his 2017 state income tax, Pierre receives a refund of $630 early in 2018. The standard deduction for single taxpayers for 2017 was $6,350. How much of the $630 will Pierre include in his 2018 gross income? Pierre, a cash basis, unmarried taxpayer, had $1,400 of state income tax withheld during 2017. Also in 2017, Pierre paid $455 that was due when he filed his 2016 state income tax return and made estimated payments of $975 toward his 2017 state income tax liability. When Pierre files his 2017 Federal income tax return in April 2018, he elects to itemize deductions, which amount to $15,650, including the state income tax payments and withholdings, all of which reduce his taxable income. a. What is Pierre’s 2017 state income tax deduction? b. As a result of overpaying his 2017 state income tax, Pierre receives a refund of $630 early in 2018. The standard deduction for single taxpayers for 2017 was $6,350. How much of the $630 will Pierre include in his 2018 gross income?Explanation / Answer
Since Pierre is a cash basis tax payer, all of the taxes paid in 2017 whether for 2016 or 2017 will be counted towards 2017, so 2017 State Income tax deduction will be = $ 2,830 (1400 + 455 + 975 ) Since he has elected to itemize his deduction entire of $630 will be included in 2018 gross income. Note: If he takes standard deduction in 2017 then nothing will be included out of $630.