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Posted by FredK on December 10, 2006, 8:26 pm
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My co-worker (no, not me!) is convinced this will work. He
is single, makes about $70-$80K, and lives in California and
will itemize deductions in 2006 but not 2007. Oh, and he's
annoying and keeps talking about this brilliant plan so I
don't want this to work out for him:
1. This month (Dec 2006), send in a $5,000 extra for state
taxes using California's 540-ES estimated tax form.
2. File CA state 2006 taxes as soon as possible in 2007 to
get the $5,000 overpayment back by, say, March.
3. File federal 2006 taxes in April 2007, itemizing
deductions, including that $5,000 overpayment.
4. In 2008, when it comes to file 2007 taxes, the $5,000 CA
state tax refund he'll get back in March 2007 is apparently
not taxable, at least according to the "State and Local
Income Tax Refund Worksheet-Line 10" on page 24 on the 2006
1040 instructions.
Net result: He has loaned the state of California $5,000
interest-free for about 3 months, losing a little in
interest (5% x 3/12 x $5000 = $62.50), but gaining $1,400
(28% x $5,000) in reduced federal taxes.
How can an overpayment not be taxable the next year,
especially if it is used just to result in reducing federal
taxes the previous year?? This doesn't smell right but I
can't poke a hole in it.
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Posted by Taxmanhog on December 12, 2006, 1:56 am
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> "FredK" wrote..
> My co-worker (no, not me!) is convinced this will work. He
> is single, makes about $70-$80K, and lives in California and
> will itemize deductions in 2006 but not 2007. Oh, and he's
> annoying and keeps talking about this brilliant plan so I
> don't want this to work out for him:
> Net result: He has loaned the state of California $5,000
> interest-free for about 3 months, losing a little in
> interest (5% x 3/12 x $5000 = $62.50), but gaining $1,400
> (28% x $5,000) in reduced federal taxes.
>
> How can an overpayment not be taxable the next year,
> especially if it is used just to result in reducing federal
> taxes the previous year?? This doesn't smell right but I
> can't poke a hole in it.
He has misinterpreted the intent & purpose of the
instructions.
He will get a bill some time before 4/15/2011 interest &
penalty on top of the income taxes due on the under reported
SITR (State Income Tax Refund)
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Bob Sandler on December 12, 2006, 1:56 am
Please log in for more thread options > 4. In 2008, when it comes to file 2007 taxes, the $5,000 CA
> state tax refund he'll get back in March 2007 is apparently
> not taxable, at least according to the "State and Local
> Income Tax Refund Worksheet-Line 10" on page 24 on the 2006
> 1040 instructions.
How does that worksheet lead him, or you, to conclude that
the refund is not taxable? The refund would be taxable. He
is probably doing something wrong on the worksheet. In 2008,
when he files for 2007, the worksheet will refer to his 2006
tax return, not his 2007 tax return, just as it now refers
to 2005 when you are filing for 2006. The worksheet is based
on the year you took the deduction, not the year you got the
refund. Is that the misunderstanding?
Bob Sandler
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Victor Roberts on December 12, 2006, 1:56 am
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> 4. In 2008, when it comes to file 2007 taxes, the $5,000 CA
> state tax refund he'll get back in March 2007 is apparently
> not taxable, at least according to the "State and Local
> Income Tax Refund Worksheet-Line 10" on page 24 on the 2006
> 1040 instructions.
I'm not a tax pro, but I think the wheels come off the wagon
at this step. Your friend should check his math.
--
Vic Roberts
Replace xxx with vdr in e-mail address.
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by D.F. Manno on December 12, 2006, 1:56 am
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<snip cow-orker's cunning plan>
> 4. In 2008, when it comes to file 2007 taxes, the $5,000 CA
> state tax refund he'll get back in March 2007 is apparently
> not taxable, at least according to the "State and Local
> Income Tax Refund Worksheet-Line 10" on page 24 on the 2006
> 1040 instructions.
>
> Net result: He has loaned the state of California $5,000
> interest-free for about 3 months, losing a little in
> interest (5% x 3/12 x $5000 = $62.50), but gaining $1,400
> (28% x $5,000) in reduced federal taxes.
>
> How can an overpayment not be taxable the next year,
> especially if it is used just to result in reducing federal
> taxes the previous year?? This doesn't smell right but I
> can't poke a hole in it.
He's making a mistake on the worksheet.
--
D.F. Manno | dfmanno@mail.com
Now this is not the end. It is not even the beginning of the
end. But it is, perhaps, the end of the beginning. Winston
Churchill
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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