Deducting state taxes

When a tax program asks that, they mean the balance due (if any) you paid with your state return when you filed it. This is because the vast majority of taxpayers operate on a calendar year schedule, which means that on your 2006 return you can deduct state taxes paid in calendar year 2006. Those taxes will be the taxes withheld from your *2006* paychecks, any state estimates paid in *2006* towards your

*2006* return, but also the balance due on your *2005* return that was paid in *2006*. Likewise, the balance due on your *2006* state return will be deductible on your federal *2007* return (because you paid that balance due in 2007).

-- Rich Carreiro snipped-for-privacy@animato.arlington.ma.us

Are you sure it's asking you about the 2006 state return? It should be asking about your 2005 state return.

No. For your 2006 Federal Schedule A your state income tax deduction is the total of state income tax withheld during

2006 plus anything else you paid during 2006. The reason TaxCut isn't asking you about the withholding is that it will pick that up off your W-2.

-- Phil Marti Clarksburg, MD

It's asking you if you made a payment when you filed your

2005 tax return (in 2006) and if so, it will add that payment to your withholding for 2006 to get the total amount of state income tax paid in 2006.

If you itemize, you can deduct ALL state income taxes paid during 2006. That includes both your withholding for 2006 and what you had to pay above and beyond your 2005 state tax withholding (that is, 2005 state tax balance due paid during

2006). OTOH if you got a state refund in 2006 and itemized in 2005, that refund becomes taxable income in 2006 (you deducted it as withholding during 2005, but then got it back in 2006 and must un-deduct it). If you owe the state for 2006, you will get to deduct it in 2007.

-- John D. Goulden

Are you sure Tax Cut said 2006 return? It should be 2005. On your 2006 return you can deduct any state income tax payment you made in 2006, including any amount that was paid with your 2005 state income tax return (filed in 2006). Your 2006 return will be filed in 2007, so any amount paid with that return is deductible in 2007, not 2006. Katie in San Diego

No, you can deduct all state/local income taxes paid in

2006. If you entered your W-2's and other income/withholding information, then tax cut knows how much tax you paid the state in 2006 except the amount you included, if any, with your return filed in 2006.

You can deduct all the state taxes you paid, whether through withholding or payments. Taxcut presumably already has the information about your withholding, since you entered it from your W-2. So it only needs to ask you specifically about additional taxes you paid with your tax return or estimated payments.

-- Barry Margolin, snipped-for-privacy@alum.mit.edu Arlington, MA

*** PLEASE don't copy me on replies, I'll read them in the group ***

You can deduct both state income tax that was withheld and state income tax that you sent with your 2006 return. TaxCut doesn't have to ask you about the tax that was withheld because it is on your W-2. TaxCut will automatically include it in the deduction. So you understood the question correctly. It wants you to enter only the amount you sent with the return. But that is not your entire deduction. Bob Sandler

I assume you mean "State Taxes sent with *2005* return," which you filed in 2006. Any state taxes that you send now with your 2006 state return will be deductible on your federal return for 2007, which you will file a year from now. Bob Sandler

I don'[t know what is said right off. I took the figure from the 2005 taxes on the form I sent in April 2006. The year-behind is what confuses me sometimes. Thanks to you, and everyone else who responded. I appreciate the help.