I am self employed and file a Schedule C (profit or loss from business) and Schedule A for itemized deductions each year. My question is...can you deduct estimated taxes paid to the state on the Schedule A?
Estimated Taxes
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Quote from jeb9999:
Have you actually read Schedule A and the instructions ?
It is very difficult to miss line "5" "State and local" subline "a" "Income Taxes".
You report what you actually paid to your state(s) during 2011.
What have you done in past years ???
I have always deducted estimated income taxes paid to the state on the Schedule A in the past. That is what my accountant said to do.
Then I thought about it some more...If I collect revenue of let's say $100k in one year and then pay that whole $100k to the state as an estimated tax, I can then deduct on the Schedule A that whole $100k as an itemized deduction leaving me with $0 taxable income for both the federal and the state and with $0 taxes to pay for federal and the state. It doesn't seem correct.
Makes no sense that your state taxes would equal total revenue. But to answer your question . . .
The amount in state taxes that you deduct on Schedule A is the estimated amount paid for the current year +/- the difference between actual and estimated taxes paid for the prior year. For example, say your estimated state tax payment in 2010 was $10,000 and in 2011 was $15,000. But your actual state tax bill for 2010 was $9,000 resulting in a $1,000 refund. In 2011 you would deduct only $14,000 ($15,000 paid for current year less the $1,000 refund).
In the long run you aren't going to have state tax deductions equal to your total income.
The amount in state taxes that you deduct on Schedule A is the estimated amount paid for the current year +/- the difference between actual and estimated taxes paid for the prior year. For example, say your estimated state tax payment in 2010 was $10,000 and in 2011 was $15,000. But your actual state tax bill for 2010 was $9,000 resulting in a $1,000 refund. In 2011 you would deduct only $14,000 ($15,000 paid for current year less the $1,000 refund).
In the long run you aren't going to have state tax deductions equal to your total income.
For the past 4 years, my accountant has been deducting on the Schedule A the estimated state taxes that I paid to the state for the current year, without adjusting for the difference between actual and estimated taxes paid for the prior year. So for example, I paid $5,000 in 2011 for state estimated taxes. When I did my tax return a few days ago, he deducted the whole $5,000 on Schedule A, NOT adjusting for the $1,500 state refund that I received last year for the 2010 state tax return. I guess he has been doing the Schedule A incorrectly for the past 4 years? I never heard from the IRS in the past 4 years about it. How many years can the IRS go back to make the corrections?