Why is Turbotax using my "Estimated" Taxes paid for my State and local taxes (Sch A, Line 5a)

Forum|Forum|4 years ago
March 8, 2022
1 reply
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State and local taxes (Schedule A, Line 5a)

Why is Turbotax using my State Estimated taxes paid in this box instead of using the General Sales taxes for my state.
Yes, my quarterlies will be much higher than the General sales taxes for my state - but why is it using Estimated taxes as opposed, for instance, to the State taxes I paid earlier this year on my 2020 return - like real taxes, like the property tax on Line 5b.

I.E. The 5a verbiage says, "may include either income taxes or . . . ", but it doesn't say "may include estimated income taxes".

And yes, it does max out the SALT at 10K, but I just want to understand what is going on.

ron in shawnee

Best answer by LenaH

If you overpay on your estimates one year to lower your tax bill, then you will likely get a refund of state or local taxes when you complete your state return. This refund then turns into taxable income in the year you receive the refund.

If all three of the following are true, your refund counts as taxable income:

You itemized deductions last year, instead of taking the standard deduction
You claimed state and local income taxes (not general sales tax)
Claiming the deduction helped you increase your federal refund or lower your tax bill

The amount that is taxable depends on how much the deduction affected your refund or tax bill. If the entire amount of overpayment lowered your tax bill, then the refund would be taxable.

@roninshawneeKS

ErnieS0

Level 15

TurboTax will maximize your deductions and use the better of state and local income taxes paid or sales taxes. Line 5a should include state taxes paid in 2021 on a 2020 balance due.

Property taxes, as you observed, are on line 5b.

Here's how to choose the sales tax deduction:

Type sales tax in Search in the top right
Select Jump to sales tax
On Let's Compare Your Sales Tax and Income Tax tap Try Sales Tax Deduction Anyway
Tap EasyGuide on How do you want to enter your sales tax info?
Fill out the screens.
On We've Chosen a Deduction for You, check the box Change your deduction
Select Sales tax deduction

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

roninshawneeKSAuthor

Level 5

Ernie-

Thanks for the response. Yes, I follow your response, but still do not understand the use of the Estimated taxes paid here - and yes, the SALT limitation (10K in my case) does limit damage here (possible miss-use of this deduction).

For instance, suppose I don't owe any State Sales Tax but go ahead and send them $10,000 in Estimated Tax Quarterlies. This would allow me to add an additional 10K in deductions on the Schedule A - allowing me to deduct an additional 10K off of my Income. I guess this is the part I am missing - or is that supposedly counter-balanced by a higher tax bill the following year (because of a possible $10K State refund). This is the only gotcha I see here.

ron in shawnee

LenaH

Answer

Employee Tax Expert

If all three of the following are true, your refund counts as taxable income:

You itemized deductions last year, instead of taking the standard deduction
You claimed state and local income taxes (not general sales tax)
Claiming the deduction helped you increase your federal refund or lower your tax bill

The amount that is taxable depends on how much the deduction affected your refund or tax bill. If the entire amount of overpayment lowered your tax bill, then the refund would be taxable.

@roninshawneeKS

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"