Question

Deduction of Taxes. Joyce is a single, cash-method taxpayer. On April 11, 2014, Joyce paid
$120 in state income taxes with her 2013 state income tax return. During 2014, Joyce had
$1,600 in state income taxes withheld. On April 13, 2015, Joyce paid $200 with her 2014
state tax return. During 2015, she had $2,100 in state income taxes withheld from her pay-
check. Upon filing her 2015 tax return on April 15, 2016, she received a refund of $450 for
excess state income taxes withheld. Joyce had total AGI in 2015 and 2016 of $51,000 and
$53,500, respectively. In 2015, Joyce also paid $5,500 in qualified residence interest.
A What is the amount of state income taxes Joyce may include as an itemized deduction
for 2014?
B. What is Joyce’s allowed itemized deduction for state income taxes for 2015?
C. What is Joyce’s taxable income for 2015?
D. What is her AGI for 2016?

Answer 1

She can include what she paid in 2013, that is S1,600 withheld and the $120 she paid in 2013 that were for 2014 taxes. Therefore, the total amount of state income taxes J may include as an itemized deduction for 2014 will be S1,720 (S1,600 + S120) She can include the S2,100 withheld in 2015 and the S200 that was paid in 2015 for her 2015 state tax. Therefore, the J's allowed itemized deductions for state income tax is S2,300 (S2,100+ $200) is calculated by deducting the itemized The taxable i from the AGI. The following is the table used to calculate the taxable income: Particulars Amount (S) Amount (S) AGI for 2015 Less Itemized deductions (Refer part (b)) Other deductions Personal exemption Total deductions and exemptions Taxable income 51,000 2,300 3,500 3,650 9,450 41,550

The problem already states her AGI in 2016 is $53,500. The AGI should include the state refund received in that year but only to the extent that the state taxes taken as itemized deductions reduced her income tax liability in the previous year, which would be $450, since her itemized deductions for that year only exceeded the standard deduction by $450. It mean that the S450 of the refund received in 2016 for the 2015 state taxes would have been included in her income for 2016. Hence, the AGI for 2016 would be S53,950 (S53,500S450).